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3 



65th CONGRESS 
2d SESSION 



SENATE COMMITTEE PRINT 



FREE ZONES IN PORTS OF 
THE UNITED STATES £2 



LETTER FROM THE 
UNITED STATES TARIFF COMMISSION 

TRANSMITTING 

IN COMPLIANCE WITH THE REQUEST OF THE SENATE 
COMMITTEE ON COMMERCE A REPORT UPON THE 
POLICY OF ESTABLISHING FREE ZONES IN PORTS OF 
THE UNITED STATES, TOGETHER WITH AN ANALYSIS 
AND COMMENT CONCERNING THE BILL (S. 4153) TO 
PROVIDE FOR THE ESTABLISHMENT, OPERATION, AND 
MAINTENANCE OF FREE ZONES IN THE PORTS OF THE 
UNITED STATES, AND FOR OTHER PURPOSES 




/ 1^G>I 3 3 



PRINTED FOR THE USE OF THE COMMITTEE ON COMMERCE 



WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1918 



t 






UNITED STATES TARIFF COMMISSION. 

Office: 1322 New York Avenue. 
Washington, D. C. 



Commissioners: 

F. W. TAUSSIG, Chairman. 

THOMAS WALKER PAGE, Vice Chairman. 

DAVID J. LEWIS. 

WILLIAM KENT. 

WILLIAM S. CULBERTSON. 

EDWARD P. COSTIGAN. 

William M. Steuaet, Secretary and Statistician. 



T). o* B. 
JAN r25 1919 



TABLE OF CONTENTS. 



Page. 

Map of free port of Copenhagen, Denmark Facing title page 

Letter of transmittal 5 

Preface 7 

PAST L 

Definition and purpose of a free zone 9 

The policy of the United States 9 

Inadequacy of bonding and drawback 9 

Bonded manufacturing warehouse 10 

Drawback 10 

Illustrations of the inadequacy of the present system 11 

The free zone and improved port facilities 12 

Effect of new facilities .' 12 

The business proper to a free zone 12 

Importance of transshipment trade 13 

Decline of transshipment trade of the United States 13 

The necessity of recovering it 13 

Tendency of this branch of trade to concentrate at free ports 14 

Growth of the free port at Hamburg : 14 

Spread of the free port policy in Europe 14 

Advantages expected from an American free zone system 15 

Conclusions 17 

PART DL 

Proposed legislation, with comment and suggested amendments 19 

APPENDIX 33 

3 



LETTER OF TRANSMITTAL. 



United States Tariff Commission, 

Washington, November 20, 1918. 
Hon. Duncan U. Fletcher, 

Chairman, Committee on Commerce, United States Senate. 

Sir: Id accordance with your request of May 3, 1918, the Tariff Commission respectfully submits here- 
with a report concerning the policy of establishing free zones in ports of the United States, together with 
comment concerning Senate Bill 4153. 
Respectfully, 

United States Tariff Commission, 

F. W. Taussig, Chairman. 

Thomas Walker Page, Vice Chairman. 

David J. Lewis. 

William Kent. 

w. s. culbertson. 

Edward P. Costigan. 

5 




»»>:;l— 19. To face page 7, 




92621—19. To face page 7. 



PREFACE. 



The act of September 8, 1916, creating the United States Tariff Commission (sec. 702) declares: 
It shall be the duty of said commission to investigate the administration * * * of the customs laws of this country * * *, 
to investigate the operation of customs laws, * * * and to submit reports of its investigations. 

The duty of investigating the administration of the customs laws carries with it a consideration of the 
bonded warehouse, bonded manufacturing warehouse, and drawback systems as instrumentalities for assisting 
reexport in foreign trade. The free zone, as an alternative and supplementary device to this end, requires con- 
sideration. Specific request for investigation and report on this subject was made by the chairman of the Ways 
and Means Committee August 16, 1917. 

On May 4, 1918, the following request was also received: 

Committee on Commerce, United States Senate, 

Washington, D. C, May S, 1918. 
Sir: I am directed by the Committee on Commerce to refer to you the inclosed bill, S. 4153, and to request you to furnish the com- 
mittee with such suggestions as you may deem proper touching the merits of the bill and the propriety of its passage. 
I am, 
Very respectfully, 

Duncan U. Fletcher, Chairman. 
Hon. F. W. Taussig, 

Chairman United States Tariff Commission. 

S. 4153 (identical with H. R. 10892) entitled "To provide for the establishment, operation, and mainte- 
nance of free zones in the ports of the United States, and for other purposes," was introduced in the Senate 
March 21, 1918, and in the House March 20, 1918. 

In the course of the investigation — 

Hearings were held in San Francisco, New York, and Philadelphia by members of the commission; 

Information and data were sought through investigation by representatives of the commission in New 
Orleans and Galveston; 

A questionnaire was sent out to several hundred merchants and shippers; 

Study was made of the history and working of the free ports or free zones in Europe and of the laws and 
regulations controlling them; 

Interviews were had with those familiar with free zone practice; and 

Information as to recent foreign development was secured through the Department of. State. 

From data thus obtained the following report is compiled, 

7 



PART I. 



DEFINITION AND PUBPOSE OF A FREE ZONE. 

The word "free" in connection with "port" or 
"zone" is apt to be misleading. It is proper to note, 
therefore, that the term has no relation either to port 
charges or to any policy of ' ' free trade " or ' ' protection" 
in this case. Conventional nomenclature is in this case 
misleading. A "neutral" zone would be more prop- 
erly descriptive. A free port or free zone is a place, lim- 
ited in extent, that differs from adjacent territory in 
being: exempt from the customs laws as affecting goods 
destined for reexport; it means simply that, as regards 
customs duties, there is freedom, unless and until im- 
ported goods enter the domestic market. 

A free zone may be defined as an isolated, inclosed, 
and policed area, in or adjacent to a port of entry, 
without resident population, furnished with the neces- 
sary facilities for lading and unlading, for supplying 
fuel and ship's stores, for storing goods and for reship- 
ping them by land and water; an area within which 
goods may be landed, stored, mixed, blended, re- 
packed, manufactured, and reshipped without pay- 
ment of duties and without the intervention of cus- 
toms officials. It is subject equally with adjacent 
regions to all the laws relating to public health, vessel 
inspection, postal service, labor conditions, immigra- 
tion, and indeed everything except the customs. 

The purpose of the free zone is to encourage and 
expedite that part of a nation's foreign trade which its 
government wishes to free from the restrictions neces- 
sitated by customs duties. In other words, it aims 
to foster the dealing in foreign goods that are im- 
ported, not for domestic consumption, but for reexport 
to foreign markets, and for conditioning, or for com- 
bining with domestic products previous to export. 

Although the free zone is naturally conceived to be 
on deep water, and is commonly regarded as in many 
ways an extension of the open sea, there is none the less 
a possibility of its establishment in an interior loca- 
tion where rail and inland waters may bring about the 
assembling of foreign and domestic goods destined for 
export. It is pertinent to note that Switzerland is 
contemplating the establishment of a free zone at 
Basle, which is close to the industrial districts of France, 
Italy, Austria-Hungary, and the German Empire. 1 

THE POLICY OF THE UNITED STATES. 

The policy of the United States has not been unfavor- 
able to the kind of commerce that the free zone is de- 
signed to promote. On the contrary, it has been the 
obvious intention of the Government to relieve reex- 
port trade from the restrictions incident to the admin- 

i Appendix, p. 75. 



istration of the tariff and customs laws, and to that 
end three institutions have been devisod. 

(1) The bonded warehouse, where goods in- 

tended for reexport may be entered and 
held free of duty. 

(2) The bonded manufacturing warehouse, 

where without payment of duty im- 
ported goods may be handled, altered, 
or manufactured solely for export, either 
with or without the admixture of do- 
mestic materials and parts. 

(3) The drawback, which is a repayment of 99 

per cent of the duties paid on imported 
goods when they are exported. 
The provision and retention of these three devices 
show clearly that it has not been the purpose of the 
United States Government to place unnecessary ob- 
stacles in the way of its citizens when engaged in inter- 
national trade. That such obstacles have arisen is 
due to the fact that the three devices mentioned were 
inadequate wholly to relieve foreign commerce from 
the regulations and restrictions placed upon the im- 

fortation of foreign goods for domestic consumption, 
t would therefore involve no change of policy to sup- 
plement these devices by a system of free ports or free 
zones such as have proved singularly effective in other 
countries. 

INADEQUACY OF BONDING AND DRAWBACK. 

There are certain features in the present bonded 
warehouse and drawback systems which detract from 
their usefulness in facilitating foreign commerce. 
Some of these features are inherent in the nature of 
the case; others consist of seemingly unnecessary 
hardships which can be ameliorated by a revision of 
the customs laws and the regulations accompanying 
them. 

In accordance with the mandate of the law creating 
the United States Tariff Commission, we have studied 
the customs administrative laws, to the end of se- 
curing simplification and granting relief from what 
seems unnecessary procedure, and reported on August 
26, 1918, our findings and recommendations. In so 
far as changes suggested in that report affect the pro- 
cedure under bonding and drawback attention is 
called to the footnotes herein. 

The purposes of the bonded storage warehouse are to 
relieve importers from the payment of duty on foreign 
products that in unchanged form* are destined for 
reexport, and also to permit the postponement of 
payment of such duties until the time when, during a 
period of three years the owner desires to remove 
them. It can not aid in expediting the entry and 



10 



FREE ZONES IN POETS OF THE "UNITED STATES. 



clearance of shipping or the handling of merchandise, 
for vessels must submit to the same formalities and 
requirements, whether they bring dutiable goods or 
goods to be placed in bond, and the goods themselves, 
whatever their destination, must be valued, sampled, 
weighed, and tested before removal from the dock. 
Much of the delay necessarily incident to the proper 
assessment of duties on imports for domestic con- 
sumption is equally imposed on goods destined to be 
reshipped. 1 

(a) To protect the public revenue from unauthor- 
ized entry of goods into domestic trade, the owner of 
the goods is required, under present procedure, to 
give bond in double the amount of the duty, which is 
forfeited if the goods are stolen, lost, destroyed, or 
fraudulently removed. 2 

(&) Even drayage between dock and warehouse 
must be done under bond. 

(c) In addition, from the time they enter port until 
they are reshipped the goods are under constant 
customs control and supervision. 

(d) While in the warehouse they must be placed 
and arranged in accordance with certain well-defined 
regulations, so that they may at any time be checked 
and inspected _by special agents of the Treasury 
Department. 

(e) Permits must be obtained for their reception 
and delivery, and strict accounts must bo kept of all 
warehouse transactions. 

(/) Except during the usual business hours the 
warehouse is closed by a Government lock, and to 
enter it at any other time requires special permission 
and payment for the overtime presence of a customs 
agent. 

(g) Handling, sorting, mixing, or repacking of the 
goods is prohibited; only where serious damage is. 
threatened can the original package be opened, and 
even then it must be done by special permission and 
undor customs supervision. 3 

(h) Subject to these regulations, the expense of 
which it should be noted is made a charge upon the 
goods, an owner may leave his merchandise in bond 
for three years, but at the end of that time if duties 
are not paid they are considered, to use a technical 
expression, as "abandoned to the Governemnt," to 
be sold by the Government, accruing charges and 
expenses deducted and the remaining proceeds turned 
over to the owner. 4 

The usefulness of the bonded warehouse is some- 
times further restricted by the tariff practice of the 
country to which bonded goods are reexported. 
Thus, the Canadian law treats goods that have been 
held in American bonded warehouses exactly as if 
they had entered American domestic commerce. 

i In the case of a ship landing part of its cargo In an American customs port and 
desiring to continue its voyage with the remainder of Its cargo to a foreign port, 
the practice and the regulations make entry of such dutiable goods en route a simple 
matter. 

In the case of a vessel entering a port having part of its cargo destined for reship- 
ment to a foreign port, it can transport its reshipment cargo to another vessel 
through bonded lighterage, with merely nominal customs procedure. 

a The suggested revision of the customs laws relieves the owner of the goods of 
this specific bonding, and looks to the owner of the bonded warehouse for safe- 
guards against such removal. 

3 The proposed revision provides permission for repacking, mixing, blending, 
cleaning, sorting, and in fact practically every process short of actual manufacture. 

* Under the proposed revision the President is given the power to extend this 
three-year term under war or any other emergency. 



When imported from this country to Canada, such 
goods are assessed for duty at the foreign value in- 
creased by the amount of the duty they would have 
paid if they had entered the United States for do- 
mestic consumption. The effect of this regulation 
finds illustration in the business of a certain American 
firm dealing in foreign embroideries. In order to fill 
a Canadian order, this firm found it necessary to send 
goods from a bonded warehouse in New York to 
England where the goods were reinvoiced and thence 
shipped direct to Canada. 

BONDED MANUFACTURING WAREHOUSE. 

The mere statement of the regulations sufficiently 
indicates the limited usefulness, so far as export trade 
is concerned, of the bonded storage warehouse. Even 
more stringent are those applying to the bonded 
manufacturing warehouse. In the latter institution 
foreign materials may be entered free of duty and 
worked up into manufactures ready for consumption. 

(a) Production can be carried on in such a ware- 
house for export only. With a few special exceptions, 
the output can not be disposed of in the domestic 
market, even on payment of duty. 1 The most im- 
portant exceptions are metal from ore smelted in 
bond, and cigars "made in whole from tobacco 
imported from one country." Minor exceptions are 
found in a provision for the entry of Mexican peas, or 
Garbanzo, which have been cleaned at such ware- 
houses, and in the permission to sell for domestic con- 
sumption by-products and waste arising in the manu- 
facture of goods for export, provided duty is first paid 
on such articles as if imported from abroad. 

(&) Before beginning operations the proprietor 
must file with the Treasury Department and with the 
collector of customs a statement of all the articles he 
intends to manufacture, giving the names of the 
articles, the exact kind and quantity of ingredients, 
and the formula of manufacture, and he must adhere 
rigidly to the formula? set forth. 

(c) He must also give bond in double the value of 
the goods he intends to produce. 

(d) From beginning to end materials and operations 
are under strict customs supervision. A multitude of 
restrictions make the procedure intricate and expen- 
sive, and the penalties for violation are very heavy. 
Only in the most highly standardized industries is it 
possible to avoid frequent disputes and misunder- 
standings. 

DRAWBACK. 

The law authorizing what is known as drawback 
permits an importer, instead of placing his goods in 
bond, to pay duty on their entry and then to draw 
back from the Treasury on their reexportation 99 per 
cent of the amount paid. This provision, of course, 
can not any more than the bonded warehouse relieve 
commerce from the delays and other burdens incident 
to customs enforcement. The intent of the law is to 
aid production for foreign markets by relieving from 
customs dues imported materials that are manufac- 

1 The proposed revision permits withdrawal for consumption of all goods pro» 
duced from bonded manufacturing warehouses. 



FREE ZONES IN PORTS OF THE UNITED STATES. 



11 



tured or finished in this country and then shipped sugar and tin-plate industries, has been relatively 
abroad. But the relief thus afTordod, except in the small, as may be seen from the following table: 

Principal imported articles used in the manufacture of articles exported upon which drawback was paid. 

[For years ending June 30.] 





Tariff act of 1897. 


Tariff act of 1909. 


Tariff act of 1913. 


Artlcl*. 


1907 


Per 

cent 

of 

total. 


1908 


Per 

cent 

of 

total. 


1910 


Per 

cent 

of 

total. 


1911 


Per 

cent 

of 

total. 


1913 


Per 

cent 

of 

total. 


1914 


Per 

cent 

of 

total. 


1915 


Per 

cent 

of 

total. 


1916 


Per 

cent 

of 

total. 




$65,589 
49, 870 
18, 824 
22,916 

907,387 
1, 525, 282 

256, 829 

33,070 

1,031,528 

44,788 


1.20 
.91 
.34 
.42 

16.66 

28. 01 

4.71 

.60 
18.94 

.82 


$16, 501 
50, 153 
44,295 
23,775 

845, 433 
2,359,486 

365, 591 

40, 499 

1,110,299 

37, 598 


0.24 

.75 

.66 

.35 

12.73 

35. 54 

5.50 

.61 

16.72 

.56 


$189, 639 

167, 762 

27,569 

37, 439 

504, 051 

1, £99, 585 

266, 614 

53, 102 

1, 933, 037 

40, 828 

10 

64,708 

54, 176 


3.06 

2.71 

.44 

.60 

8.15 

30.72 

4.30 

.85 

31.26 

.66 

.0001 

1.04 

.87 


$303, 894 

180,472 

42,020 

14, 157 

264, 638 

1,461,479 

429. 202 

56, 292 

2, 000, 154 

156, 213 

544 

41,499 

63, 872 


4.74 

2.81 

.65 

.22 

4.13 

22.82 

6.70 

.87 

31.23 

2.43 

.008 

.64 

.99 


$245, 894 

147,318 

56, 296 

52, 016 

93, 068 

45, 271 

481, 336 

61,139 

1, 443, 887 

90, 949 

330 

51,918 

39, 290 


5.40 
3.24 
1.23 
1.14 
2.04 

.99 

10.59 

1.34 

31.77 

2.00 

.007 
1.14 

.86 


$254,123 

69, 646 

25,033 

50, 735 

940 

84, 905 

375,018 

48, 451 

658,319 

163,114 

1,103 

39,044 

15, 950 


8.02 
2.20 

.79 
1.60 

.02 

2.68 

11.84 

1.53 

20.79 

5.15 

.03 
1.17 

.50 


$151, 169 
26, 273 
16, 291 
58, 279 


2.05 
.35 
.22 

.79 


$75, 492 
52, 865 
24,250 
70, 243 


0.49 


\\ hoat flour 


.34 


Cotton manufactures 

Fruits and nuts 


.15 
.14 


Hides of cattle 




Tin plates 


451,246 
184, 569 
44,471 
5, 412, 620 
81,966 
22, 207 
43,397 
59, 234 


6.14 

2.51 

.60 

73.74 

1.11 

.30 

.59 

.80 


22, 473 
98, 952 
39, 797 
13, 776, 451 
29, 636 
372,978 
136, 300 
53, 394 


.14 


Lead ore and bullion 

Oils (rapeseed and other).. 

Sugar and molasses 

Zinc 


.64 

.26 

90.18 

.19 


Opium and manufactures. 


2.44 


Chemioals,dnigs,and dyes 


86, 106 
39, 445 


1.58 
.72 


140, 549 
53. 553 


2.11 
.80 


.89 
.34 






Total 


5, 445, 151 




6, 637, 602 




6, 182, 375 




6, 402, 603 


4,543,536 


3,165,082 




7, 339, 236 




15, 275, 686 





It is obvious from these figures that scores of indus- 
tries in this country that now use foreign materials to 
produce goods for export do not exorcise the drawback 
privilege at all. The reason is that, for the prevention 
of fraud, the privilege is so hedged about with exacting 
and intricate regulations that the amount of the draw- 
back very often does not pay for the labor and cost of 
collecting it. 

(a) To prove the identity of goods on which draw- 
back is claimed requires a minute checking of imported 
elements entering into the manufacture, with the right 
and oftentimes with the need of examining into 
factory management sometimes threatening the dis- 
closure of trade secrets of importance. So complicated 
is the procedure in making claim and proving identity 
that many producers do not find it worth while to 
appiy for drawback at all. Large-scale industries, 
like sugar refineries and those compelling the use of 
large quantities of tin plate, go to the expense of 
employing experts permanently to look after their 
drawback interests. 

(b) Every step must be taken subject to customs 
inspection, and oaths are required from importers, 
superintendents, and exporters. 

(c) Even after reshipment, before drawback can be 
recovered, evidence must be given of the actual land- 
ing of the goods in a foreign country. 1 

(d) At best, under the smoothest operation of the 
law, that part of the owner's capital advanced in pay- 
ment of duties is tied up in the Treasury from the 
time the goods are imported until 30 days after they 
are reshipped. 

ILLUSTRATIONS OF THE INADEQUACY OF THE PEESENT 
SYSTEM. 

At the hearings conducted by the Tariff Commis- 
sion and in the replies to its questionnaire numerous 
instances were adduced illustrating the inadequacy of 
the bonding and drawback system. To a few of these 
attention may be here directed. 

Rice milling is an industry for the successful prose- 
cution of which all conditions appear to be favorable 

1 Under the proposed revision of the customs laws, the landing certificate require- 
ment is abolished, excepting when, in specific instances for reasons assigned, the 
Secretary of the Treasury shall call lor such procedure. 



in the United States except a sufficient supply of raw 
material. The industry is now limited almost entirely 
to the preparation of the domestic product for do- 
mestic consumption, and this does not furnish full 
employment. It requires expensive specialized ma- 
chinery and much skilled labor that must be engaged 
by the year. But testimony was presented showing 
that the largest mills are idle much of the time, because 
the domestic crop can keep them in operation for only 
half the year. Efforts have been made to use the idle 
months m cleaning and milling oriental rice, the supply 
of which is very large, for reexport to the West Indies 
and Spanish America. To do this work profitably the 
rice must be imported in full ships' cargoes and handled 
in bulk through grain elevators. These cargoes usually 
are about 6,000 tons, and as there is an average duty of 
one-half cent a pound on rice, the duty that must be 
paid on a full cargo is $60,000. The importer, of 
course, would be entitled to a drawback on such quan- 
tity of the rice as was reexported; but it was the 
unanimous testimony of the mill officials interviewed 
that the business had to be discontinued because of the 
difficulty, delay, and expense of securing the draw- 
back. 

Again, it was found that imported flowers and feath- 
ers and imitation feathers are extensively used in this 
country for trimming women's hats, the model or 
frame of which is an article of domestic production. 
Also Panama and imitation Panama hats for the use 
of both men and women are imported from Central 
and South America and finished in the United States 
with the use of domestic materials. The industry has 
been almost entirely limited to supplying the domestic 
market, for our manufacturers have found themselves 
hampered in competing for foreign markets by the 
restrictions of our bonding and drawback system. 

The effect of these systems on dealers in highly 
finished goods is perhaps best seen in the case of laces 
and embroideries. These are manufactures for which 
Spanish America offers a large and lucrative market 
which heretofore has been almost entirely supplied 
from Europe. Commodities of this character are apt 
to be included in the same order with a variety of 
other goods, and the order naturally goes to the dealer 
who can fill it as a whole at the lowest price, in the 



12 



FKEE ZONES IN POETS OF THE UNITED STATE!. 



shortest time, and in the most convenient form. The 
order often includes specialties covered by trade-mark 
that are produced in different countries. To engage 
sucessf ully in this trade, therefore, the merchant must 
be able not only to furnish the goods of his own country 
but also to assemble, sort, and repack foreign mer- 
chandise for convenient delivery. This kind of com- 
merce American merchants are precluded from enter- 
ing except under the greatest difficulties. In many 
parts of South America merchandise has to be trans- 
ported for long distances in carts or on the backs of 
mules or llamas. It must be packed, therefore, with 
the least possible weight and in such form that the 
packages may be evenly balanced. Furthermore, dry 
goods are usually dutiable in those countries at specific 
rates by weight, so that the lighter the carton or cov- 
ering the lower the duty will be. But our bonding 
system does not permit the original packages received 
from Europe to be broken and rearranged. And if 
American manufacturers of clothing use imported 
laees and embroideries in making women's wear, the 
difficulty of identification and the expense of collecting 
a drawback are so great that when they export such 
goods they frequently prefer to forego the claim. One 
American exporter testified that his firm found it nec- 
essary to take goods from bonded warehouses in the 
United States and ship them to a "West Indian port 
where they might be repacked and thence forwarded 
to destination. 

Such are specific illustrations brought out at the 
hearings and in the correspondence conducted by the 
Tariff Commission showing the need of American in- 
dustry and commerce for more liberal arrangements 
inhandling and transshipping foreign products. Before 
pointing out how this can be accomplished through 
the establishment of free zones, it should be said with 
the greatest emphasis that the advantages to be enu- 
merated can be attained in full measure only through 
the observance of certain prerequisites such as are set 
forth in the oill, comment on which forms the second 
part of this report. The free zone or port that is here 
contemplated is one of the character provided for in 
that bill. 

THE FREE ZONE AND IMPROVED PORT FACILITIES. 

The most important prerequisite is that such a port 
shall provide properly coordinated, modern, and effi- 
cient physical facilities for the lading and unlading of 
cargoes, the entry and clearance of vessels, and the 
handling of merchandise. In the main, wharves, 
docks, piers, terminal facilities, and other necessary 
features of American ports have developed with few 
exceptions by a process of planless accretion. They 
are exposed to frequent fluctuations between slack- 
ness and congestion, and recent experience has proved 
them altogether unprepared for emergency. The 
uncertainties of business discouraged the installation 
of costly modern equipment, and this in turn increases 
the direct labor charge and adds to the expenses of 
trade. The privileges of a free zone, through the pro- 
motion of commerce in regions naturally adapted for 
it, would attract capital to the creation of the facilities 
that should in every case be made an indispensible 
prerequisite. The detailed specification of these 
facilities should be made by the Secretary of Com- 
merce, and might well vary somewhat from port to 
port with a view to proper adjustment both to topo- 



graphic conditions and to the volume and character of 
the commerce to be handled. In the judgment of the 
Tariff Commission it is highly important that the 
necessary capital should be provided, not by the Fed- 
eral Government, but by the State or municipality 
within which the free zone is_established. The neces- 
sity of meeting the cost of construction and equipment 
from local resources would go far to limit the applica- 
tion for free zone privileges to those ports where there 
is a prospect that the acquisition of them would be 
justified by the results; while, on the other hand, the 
hope of securing a Government appropriation would 
attract an application from every handling place on 
the coast. 

EFFECT OF NEW FACILITIES. 

The subject of providing new facilities can not be 
dismissed without reference to its probable effect on 
facilities already existing and the investments that 
have been made in them. The prospect that a pub- 
licly financed free zone with its elaborate equipment 
would destroy the usefulness of the facilities already 
constructed at great cost in our ports would arouse a 
widespread and not unjustified opposition to its estab- 
lishment. The inquiries of the Tariff Commission, 
however, lead to the belief that no such destruction 
would be entailed. The experience of foreign coun- 
tries has been that the growth of business in a free zone 
has been accompanied by a material although smaller 
increase in the use also of the previously existing 
facilities. The trade, for example, in the free port of 
Copenhagen grew in seven years by 400 per cent, 
while at the same time the trade of the old, or customs, 
port not only escaped a loss, but actually showed some 
gain. The purpose of a free port is not to divert 
business from those that now transact it, but to pro- 
vide for new business that under present circum- 
stances can not grow as it might. The testimony of 
men familiar with present arrangements was em- 
phatic to the effect that there would be little or no 
diversion of the passenger traffic or of the handling of 
dutiable goods and of the few goods that now make 
substantial use of the drawback and bonding system. 
Some diversion, indeed, might well be wished for by 
all concerned, in view of the congestion witnessed in 
recent months at American ports and the obvious 
incapacity of existing facilities to handle the present 
commerce with convenience and dispatch. 

THE BUSINESS PROPER. TO A FREE ZONE. 

The questions now arise, Whence is the new business 
destined for a free zone to come, and in what way will 
it profit the country! Partial replies have already 
been suggested in what was said above with regard 
to the bonding and drawback systems. The business 
proper to a free zone consists in receiving and manipu- 
lating foreign products and reshipping them in the 
direction and at the time to take advantage of the best 
foreign markets. This is not only a profitable business, 
it is also becoming a necessary business to our indus- 
trial growth. For however wide the range of goods 
we produce and however effective our methods of 
production, we can sell our products to best advantage 
only when the purchasers are able to pay for them 
with products or their own. If we do not accept their 
products, they must sell them in some third country 
and transfer to us the credit they thus acquire — unless, 



FREE ZONES IN POETS OF THE UNITED STATES. 



13 



indeed, they forego buying our goods at all and make 
their purchases in the country where they make their 
sales. 

IMPORTANCE OF TRANSSHIPMENT TRADE. 

In the modern maritime nations the business of 
assembling and preparing the products of foreign 
countries tor transshipment and redistribution abroad 
has grown steadily in volume and importance. Sta- 
tistics are not available for an accurate statement of 
the amount of goods thus handled, but estimates 
putting their annual value in normal years at approxi- 
mately four billions of dollars do not seem exaggerated. 
They consist in the main of the raw materials of those 
countries that have not attained a high stage of 
industrial development and that are dependent on the 
maritime nations for the transportation of their 
products and the supply of their necessities. To some 
extent, however, manufactured and partly manufac- 
tured goods enter the trade. This occurs when the 
country conducting the trade does not itself pro- 
duce the particular manufactures that are demanded. 
In such a case the goods are purchased where they are 
produced, transshipped in the trading country, and 
sold where they are wanted. It is well known that 
only by such a triangular route and through the hands 
of foreign dealers have many American specialties 
entered the markets of South America and the Orient. 
Obviously, a country engaged in this business benefits 
from it in a number of ways. It receives the profits 
on merchandising and transportation; its producers 
have first choice at lowest prices of the materials 
handled; and it can sometimes gradually build up a 
preference for its own products in supplying foreign 
markets. How small is the share of the United States 
in these benefits is indicated by the fact that the trans- 
shipment trade has not been deemed important 
enough to deserve separate statistical statement. In 
the annual reports of the Bureau of Commerce and 
Navigation, Table 8 combines the value of the goods 
transshipped and the value of goods in transit that 
merely cross United States territory in bond from one 
foreign country to another. All together in 1914 
they amounted to the considerable value of $198,303,- 
232, but not less than $155,847,478 of this was for 
goods in transit to and from Canada. 

DECLINE OF TRANSSHIPMENT TRADE OF THE UNITED 
STATES. 

Our part in this business has not always been so 
insignificant. A little more than a century ago Europe 
was involved in a war almost as paralyzing to com- 
merce as that now in progress. During its con- 
tinuance, except for the period of our second war with 
England, not only the trade of this country but a great 
part of the whole sea-borne commerce of the world was 
conducted by American merchants, carried on Ameri- 
can ships, and financed by American capital. After 
the coming of peace, however, in spite of the swift 
growth of international trade, her share of it steadily 
di m i n ished, until in the present generation her ships 
have carried less than 10 per cent even of her own 
foreign commerce. Numerous causes contributed to 
the decline ; prominent among them, of course, was the 
strengthening competition in time of peace of those 
maritime countries whose absorption in war had given 
America her easy supremacy. Chaotic banking con- 



ditions in this country also long played an equally 
important part. An added disadvantage was found 
in the change from wooden ships, which had been built 
cheaply in America and of better quality than else- 
where, to iron and steel vessels, in the construction of 
which American enterprise was lagging. Finally, 
during the Civil War the hazards of foreign trade led 
not only to the wholesale transfer of American tonnage 
to foreign registry, but also to the almost complete 
withdrawal from that field of American capital and 
enterprise. But while these and other things con- 
tributed to the same result, the most potent and con- 
tinuous cause for the decline of maritime commercial 
interests in the United States lay in the more attractive 
opportunities found in other fields of industry. The 
settlement of the interior, the growth of manufactur- 
ing, the building of railroads, the development of 
internal resources of many kinds created a demand for 
labor and capital and offered rewards that foreign 
trade under competitive conditions did not afford. 
Commercially the United States became passive in- 
stead of active. Exports and imports, it is true, 
continued to grow; but the management, the direction, 
the transportation, and other mercantile operations 
connected even with her own trade, together with the 
profits arising from them, in large measure passed to 
foreigners, while her share in other branches of inter- 
national trade was almost entirely lost. In the early 
years of the nineteenth century the value of foreign 
products reexported from America was nearer a half 
than a third of the value of her total annual imports; 
in the early years of the twentieth century the ratio 
was only about 3 per cent. 

THE NECESSITY OF RECOVERING IT. 

The chief causes for the decline of American mari- 
time enterprise now no longer operate. The outbreak 
of the present war has again forced the United States 
into a position of prominence in international trade. 
It has devolved upon this country to find capital, to 
furnish ships, to modify her own production, and to 
assemble and redistribute many products of other 
lands. Widespread interest has been aroused and 
considerable investments have been made in this long 
neglected field. For the promotion of foreign trade 
new corporations have been formed and old ones ex- 
panded, a great merchant marine is under construction, 
the banks have extended their foreign agencies and 
created new ones; indeed, it is not too much to say 
that American business as a whole tends to be reor- 
ganized on the basis of a permanent widespread and 
varied foreign commerce in which Americans shall be 
active participants. Even before the war it was 
already generally recognized that industry was becom- 
ing constantly more dependent on foreign markets, 
and that to secure and maintain these it was necessary 
not only to provide goods that foreigners might want 
but also to furnish in return a market for their prod- 
ucts. And since for many of these products there was 
no demand in the United States, it followed, if they 
were to be received by American merchants in ex- 
change for American goods, that these merchants 
should find a way to dispose of them in some other 
country where a demand did exist. It was already 
clear that industrial prosperity at home would be 
advanced if this country should play a larger part in 
the organization and conduct of international com- 



14 



FREE ZONES IN POETS OF THE UNITED STATES. 



merce as a whole, and this larger participation ap- 
peared equally desirable under conditions of peace as 
in time of war. The present war, therefore, by no 
means created the need for commercial expansion, but 
it has emphasized the need for it and has powerfully 
stimulated the growth of it. It has enabled, and 
indeed compelled, the United States to occupy a place 
in the world's commerce the retention and improve- 
ment of which will greatly contribute to her future 
welfare. Thoughtful men everywhere now see in the 
expansion of our foreign trade an added benefit to our 
internal prosperity. 

TENDENCY FOB THIS BRANCH OF TRADE TO CONCEN 
TRATE AT FREE PORTS. 

During the nineteenth century, after the withdrawal 
of the United States from this branch of trade, it 
tended to be concentrated for the Occident at the 
ports of the English Channel and the North Sea and 
for the Orient at Hongkong and Singapore, and it is 
significant that in these ports commerce with all 
nations was most free and least hampered by customs 
regulations. It can not be claimed, of course, that 
their commercial prosperity was due solely or even 
mainly to freedom from this particular handicap. 
Many conditions must be' favorable and many forces 
must combine for the building up and maintenance of 
a great foreign commerce. But it is a field of enter- 
prise in which competition appears in its most active 
form, and experience in the last 50 years clearly shows 
that the absence of artificial restrictions will fre- 
quently suffice to direct the flow of international 
trade. Thus while Fiume, Trieste, Pasajes in Spain, 
and even Dantzig on the Baltic did not achieve great 
commercial expansion by virtue of their free-port 
privileges, yet the beneficial influence of similar priv- 
ileges at Hamburg, Copenhagen, and elsewhere has 
been great and unmistakable. 

GROWTH OF THE FREE PORT AT HAMBURG. 

Of modern free ports, their management, character, 
and successful operation, Hamburg furnishes the best 
illustration. This city has always been dependent on 
its commerce, and as long as it was an independent 
republic it arranged its customs regulations with a 
view to the least possible interference with trade com- 
patible with fiscal requirements. The formation of 
the German Empire in 1871, with a tariff system com- 
mon to all the component States and administered by 
the Imperial Government, threatened to destroy Ham- 
burg's prosperity and to divert much of her commerce 
to the rival ports of England and Holland. The city, 
therefore, long refused to enter the Imperial customs 
union. In 1882 a compromise was effected, by the 
terms of which Hamburg was permitted to maintain 
an area, accessible by both land and water, where 
goods from all parts of the world might be landed, 
handled, and reembarked without any interference 
whatsoever from customs officials. This area was to 
be a free port, and only when goods passed through 
its gates into the interior of the country were the 
duties levied under the German tariff to be collected 
on them. In addition to the privilege thus accorded, 
Hamburg received a cash payment of 40,000,000 
marks, and the money was used by the municipal 
authorities to improve the site selected on the river 
bank, and to construct facilities for the most efficient 



handling of a great commerce. They planned largely, 
anticipating rapid growth, but development so far 
outstripped their expectations that several times 
within a generation both space and equipment had to 
be greatly increased. Without doubt the growth was 
due in largest measure to the economic development of 
the German Empire, for which Hamburg serves as the 
chief port, and the direct trade between Germany and 
foreign countries is conducted, of course, under the 
ordinary customs regulations. But equally, without 
doubt, it was the creation of the free port that enabled 
the city to become an important center for the com- 
merce between other nations and a great consignment 
market for products from almost all parts of the 
world. Unfortunately, official statistics make no dis- 
tinction between German goods and foreign goods 
shipped from the port, but a careful estimate for the 
last year before the war puts at $200,000,000 the value 
of the foreign products exported. These figures illus- 
trate only the importance of the transshipment trade; 
they give no indication of the advantage to German 
manufacturers of having at their door a convenient 
assembling place for the materials which they need 
nor of the degree to which the markets for German 
goods were extended through Hamburg's ability to 
receive and dispose of the products of other countries 

SPREAD OF THE FREE-PORT POLICY IN EUROPE. 

It is of interest to note the spread of the free-zone 
idea and free-zone practice throughout the world. 
Hamburg has, of course, been closed in by war con- 
ditions. No statistics are available since 1907 of that 
most important exponent of the policy. There are 
available from Copenhagen, next in importance, sta- 
tistical tables of 1910. There the free port was imme- 
diately found to be too small for the commerce pro- 
duced, and there is continuing enlargement. 

Spain, in 1914, authorized a free zone at Cadiz. 
Barcelona secured the same privilege in 1916, Bilbao 
and Santander in 1918. There has been a temporary 
setback in improving the zones under the privilege, 
owing to the fact that the Spanish Government 
reserved the right to a revocation at any time and did 
not offer the security of a term grant. It is now 
expected that the free-zone privilege will be given with 
such terms as to encourage investment by public and 
private corporations. 

Sweden, anxious to share in the transit trade of the 
Baltic, is establishing free zones at Gothenburg and 
Malmo. 

France has long been agitating the question and has, 
during many years, received reports and has had bills 
introduced, which, up to the present time, have not 
been enacted into law. The most recent report 
received through the State Department is to the effect 
that the matter is still under serious consideration. 
A consular report from Havre states that it is antici- 
pated that Havre and Marseille, among other French 
ports, would be equipped with free-zone privileges, 
with the probable exclusion of manufacturing. 

Norway is shown by our consular reports to be 
interested in establishing a free port at Christiania. 

Portugal has authorized the privilege by law, and 
the latest information was to the effect that establish- 
ment was being made at Lisbon. 

Quoting from statements by Mr. H. R. Geddes, the 
managing director of the Continental Daily Parcels 



FREE ZONES IN POETS OF THE UNITED STATES. 



15 



Express and Northern Traffic (Ltd.) and one of the 
leading commercial experts in Great Britain, made in 
191S, we are informed: 

Sweden proposes to establish free ports at Gothenburg and Stock- 
holm, and Norway is discussing the possibilities as to Christiania. 
Denmark is making preparation on a large scale to retain the in- 
creased trade done at Copenhagen and to control the tremendous 
trade in the Baltic, and served by the gulfs of Bothnia and Finland, 
for Scandinavia and Russia. The German ports, however, will 
make it as uncomfortable as possible for Denmark. 

Russia, under the old regime, proposed to establish a free port at 
Novy Port, Petrcgrad. This scheme is probably now in abeyance. 

Switzerland is thinking very seriously of inaugurating a free area 
at Basle and catering for the transit trade of France, Italy, and the 
German and Austrian Empires. A glance at the map would show 
the possibilities of this scheme. 

Great Britain is seriously considering the establish- 
ment of free zones throughout the Empire. There 
have already been great transshipment agencies free 
from customs interference at Hongkong, Gibraltar, and 
other points, but these differed from the technical free 
zones established under more rigorous tariff systems. 

Low-tariff countries and countries having few arti- 
cles on the dutiable list have not needed such installa- 
tion, as was evidenced in the trade of Belgium, Hol- 
land, and the British Isles; but Great Britain, now 
faced with the need of larger revenue, with the pos- 
sibility of higher and more inclusive tariffs, feels the 
need of customs immunity in her transshipment trade 
and is considering the establishment of free zones as 
discussed in this report. A parliamentary return 
dated March, 1918, by a departmental committee 
appointed by the board of trade, concerning itself 
with the shipping and shipbuilding industries after the 
war, states (p. 119, par. 352 of its final report, under 
the head of "General recommendations"): 

Free ports. — In this connection reference must be made to the 
free-port system prevailing in many foreign countries. Should it 
be decided, whether for revenue or other purposes, to extend widely 
the range of duties on imported articles, the question of creating 
similar free ports in the United Kingdom would become a matter 
of pressing importance. It is essential that the position of the 
United Kingdom as a great transshipment and entrepot center 
should not be impaired, and the best means of safeguarding these 
national interests would undoubtedly be by the establishment of 
free-customs areas on a large scale at the ports principally concerned. 

In this connection attention is called to the informa- 
tion afforded by Mr. Geddes's speech before the Dover 
(England) Incorporated Chamber of Commerce, on 
February 14, 1918, printed in the Appendix (p. 74). 

ADVANTAGES EXPECTED FROM AN AMERICAN FREE 
ZONE SYSTEM. 

Detailed statements of the advantages to be ex- 
pected from a free-zone system were given by various 
business interests that would be affected by its estab- 
lishment, in answer to a questionnaire sent out by the 
commission. The more important of these advan- 
tages may be summarized under the following heads: 

(1) In simplifying entry and clearance. — Time lost by 
merchant vessels, whatever be the cause of it, is always 
costly, and owners in forecasting profit or loss must 
reckon closely the probability of delays that involve 
the idleness of ship and crew. It is well known that 
such delays, varying from several hours to several 
days, are imposed by customs procedure on vessels 
entering and clearing at American ports. Officials and 
ships' officers of regular lines, it is true, acquire a 
familiarity with the regulations that enables them 
under normal conditions to reduce the delay to a few 
hours; but the typical commerce carrier, the "tramp 



steamer," the chartered vessel, that is free to seek 
business wherever its services are in demand, finds the 
delay much more serious, and in the event of misunder- 
standing and a consequent failure to follow the pre- 
scribed procedure the owners incur penalties that may 
change the result of a voyage from profit to a loss. 
The formalities for making entry must be rigorously 
discharged, and the regulations for handling and un- 
loading cargo are strict and detailed. All vessels im- 
mediately on arrival are boarded by customs inspectors 
and remain in customs custody, together with their 
cargoes, until they are unladen and cleared. Vessels 
designated as common carriers bv the Secretary of the 
Treasury, upon giving bond and paying double com- 
pensation for the extra time of weighers and inspectors, 
may, if they wish, receive or discharge cargoes at 
night and on Sundays and holidays; but otherwise 
loading and unloading are permitted only during the 
usual business hours in open day. The entry of goods 
is little less technical and time consuming than the 
entry of vessels. Even after it has left the ship duti- 
able merchandise can not be removed from the wharf 
or place where it is landed until it is weighed, gauged, 
or measured, or — in the case of spirits and sugars — 
until the proof or quantity and quality are ascertained 
and properly marked. Disputes are inevitable with 
regard to such matters as valuation, obliterated marks, 
damaged goods, broken packages, and they necessarily 
impede the smooth flow of goods away from the piers. 
This tends to cause congestion, which in turn delays 
further discharge of cargo and adds to costs and 
charges. The situation is sometimes made worse by 
practices that under the present system it is difficult to 
prevent. A committee of the San Francisco Chamber 
of Commerce reports : 

In our experience in San Francisco we found that many times 
consignees are unfair in a practice of making the customhouse an 
excuse for keeping cargoes on the wharf longer than they should be 
kept; and freight congestion is alleged to be due to inadequate 
wharf arrangements, when, in fact, it is frequently a case of juggling 
in order to secure free storage on the piers. It is a very serious and 
costly detriment to a port to have the wharves piled up with goods 
because real and frequently pretended customhouse requirements 
compel it. 

It is too obvious to require discussion that shipping 
is aided by prompt docking, the uninterrupted dis- 
charge of cargo, quick lading, and an early clearance. 
The time and expense thus saved are a weighty argu- 
ment for a free zone. 

(2) In equalizing inbound and outbound traffic. — Ad- 
equate facilities and simplicity of regulations for 
entry and clearance will do much to stimulate ship- 

Sing at American ports. But for the stimulation to 
e effective and to give practical aid to the growth of 
commerce there must be reasonable certainty that 
ships will find cargoes both in and out bound. In the 
lack of this certainty the trade of the United States 
differs in marked degree from that of other highly 
developed nations. It is true that the import and 
export trade of this country, taken as a whole, is very 
great. But in no direction is there any reasonable 
balance of the tonnage required for the inbound and 
that required for the outbound traffic. Thus in the 
trade with Europe exports require much more ship- 
ping than imports. Many ships, therefore, must come 
from Europe in ballast, or take cargoes under com- 
petitive conditions that make inbound freight rates 
relatively low; and it follows that all or the greater 
part of the cost of the whole voyage must often be 



16 



FREE ZOKES IN PORTS OF THE UNITED STATES. 



made up by the charges imposed for transporting 
American merchandise to Europe. In our trade with 
South America the situation is very different, for the 
inbound tonnage is markedly greater than that out- 
bound. Consequently, except for the few regular 
liners engaged in this field, ships bringing South 
American produce must return in ballast, or must 
ply from port to port seeking a precarious cargo. In 
preference to either of these alternatives they usually 
load in the United States for England, Hamburg, or 
Copenhagen, where they expect to find with reasonable 
certainty a full cargo back to South America. Similar 
inequalities exist in our commerce with many other 
parts of the world. With some countries, indeed, 
whose produce we buy and where a demand exists for 
American goods, we have little or no direct communi- 
cation. Our trade with them is almost entirely con- 
ducted through transshipment in foreign countries, an 
indirect method that both increases its cost and sub- 
jects to foreign control its volume and variety. 

(3) In facilitating dealings in foreign products. — It is 
obvious that relief from the inequalities described, the 
maintenance of regular and adequate transportation 
facilities and the establishment of moderate and stable 
freight rates can come only through the growth at 
American ports of traffic that moves both inward and 
outward on the same course. The free zone will pro- 
mote this growth by giving greater freedom to the 
import of goods not for domestic consumption but 
for transshipment to other countries. We should pro- 
vide full cargoes for ships wishing to clear for countries 
to which our exports of domestic merchandise are as 
yet small and irregular, in order that such exports 
may find ready and cheap transportation; and we 
must receive full cargoes from other countries to which 
we sell in larger volume. Preliminary to reshipment 
foreign goods thus imported frequently require sort- 
ing, cleaning, blending, repacking, and other forms 
of manipulation to adapt them for the market to which 
they are to be consigned. For such work, as has been 
already pointed out, the bonded warehouse and the 
drawback are inadequate and, in a measure, inevit- 
ably so. And the free zone appears to offer the only 
sufficient means of permitting it and, at the same 
time, of protecting the revenue and maintaining such 
limitations as the Government sees fit to fix for the 
import of foreign goods for domestic consumption. 

(4) In stimulating certain branches of 'manufactur- 
ing. — Less important than the preparation of foreign 
merchandise for reshipment, but not altogether insig- 
nificant, is the opportunity the free zone affords for 
the manufacture of export goods partly from domestic 
and partly from foreign raw materials. Many such 
goods are now made in this country, but owing to the 
duty on the foreign materials relatively few of them 
can be exported in competition with foreign producers. 
It is impossible precisely to specify in advance the 
branches of manufacturing that would use the oppor- 
tunity thus offered. In general, aside from industries 
peculiarly related to the repair and outfitting of ships, 
its chief attraction would he to those manufacturers 
in the cost of whose finished products the cost of du- 
tiable foreign materials forms an important part. 
There readily come to mind under this head such 
products as cigars, straw hats, certain chemicals, 
medicinals, and fertilizers, certain kinds of confec- 
tionery, brushes made of prepared bristles, prepara- 
tions of fruit, rice, and other foodstuffs. But it is 



fairly certain that many such commodities would not 
be produced in the free zone. For some of them pro- 
duction for export has been fairly stabilized under the 
bonded warehouse and drawback systems. In the 
case of others the inducements of the foreign market 
alone are not enough to justify investments for their 
production, and their entry into the domestic market 
would be subject to restrictions identical with those 
imposed on foreign manufactures. The manufacturer 

Eroposing to enter the free zone would have to base 
is calculations of profit on the prospect of manufac- 
turing solely for export. This is practically a new 
field for American capital and enterprise, and before 
entering it a close scrutiny would be necessary of the 

Eroblems and possibilities peculiar to each separate 
ranch of production. In all likelihood, therefore, 
its development would be slow and long confined 
within narrow limits. Even with such a prospect, 
however, it is not without importance. It should be 
remembered that the list is lengthening of American 
manufactures made up in large measure of foreign 
materials and parts. Not a few manufacturers of 
such commodities have already found it expedient to 
establish branch plants abroad, a practice that is 
strongly marked in the case of sewing machines, type- 
writers, shoe machinery, and other typically American 
products. While it is true that the practice is due 
chiefly to foreign patent legislation, foreign duties on 
finished manufactures, and some other causes that 
operate in special cases, it is also true that it is often 
promoted by the American duties on materials and 
parts that have to be imported. It is not unreason- 
able to believe, therefore, that by some manufacturers 
the free zone would be preferred to a foreign location 
for branch plants. "Broadly speaking," says an ex- 
perienced American producer, "my idea is that small 
parts, requiring extensive labor application in creating 
the articles, could be made in Europe and the heavier 
and broader work done here; and instead of the 
American industry losing the entire article, part of the 
article would continue as American manufacture, and 
the profit accruing on the small parts — which would be 
assembled in this zone and placed in the machine — 
would also naturally remain as American 
capital." 

(5) In stabilizing transshipment trade under varying 
tariff policies. — Of all the advantages to be expected 
from a free-zone system that which might be looked 
for with the greatest certainty would arise through 
freeing the transshipment trade from the unsettling 
effects of tariff charges. At present American mer- 
chants importing foreign goods with a view to reship- 
ment abroad must reckon the costs entailed by the 
bonding and drawback systems, and these costs 
necessarily differ with every change in the rate of 
duty. An impending tariff revision, therefore, causes 
wide fluctuations and sometimes a complete interrup- 
tion of this business, and much time elapses before 
broken connections can be restored. Any uncertainty 
connected with the national tariff policy thus becomes 
a serious handicap to the very branch of commerce 
which it was never intended that the tariff should 
affect. For half a century, it is true, this branch of 
commerce has been relatively so insignificant in the 
United States, that it has been ignored in the framing 
of successive tariff acts. Should it, however, attain 
the development promised bv the fulfillment of present 
tendencies, its security will demand either a very 



FREE ZONES IN POETS OF THE UNITED STATES. 



17 



stable tariff policy or the provision of neutral zone9 
for its transaction. In this connection it may be 
noted that the advocates of a more extended tariff 
system in England are now incorporating in their 
policy proposals for a system of free ports. 

(6) Miscellaneous advantages. — There are other ad- 
vantages, incidental but practical, that are expected 
of a free-zone system by its advocates. Among them 
is the feasibility of removing the present restriction of 
the bonding privilege to a period of three years; the 
provision of adequate space and facilities for exhibiting 
goods and samples, and for demonstrating methods of 
selecting and packing merchandise so as to meet foreign 
requirements; a reduction in the costs of dray age and 
of other processes in handling goods. Again, it is 
urged that while there are some charges, such as taxes 
and wages, which will undoubtedly be as high within 
the zone as without, there are others, such as insurance, 
rents, and the charges for guarding against violation 
of the revenue laws which should be lower than under 
the present system of scattered and more or less anti- 
quated bonded warehouses. There are additional ar- 
guments for the free zone based on practices that have 
proved commercially advantageous in Europe. Men- 
tion may be made of the peculiar acceptability at 
Copenhagen of free-port warehouse certificates as 
collateral for advances. The thorough police and 
fire protection provided there, the exemption of goods 
in storage from all customs claims, and the adequate 
precautions taken against deterioration render the cer- 
tificates exceptionally desirable securities. In con- 
sequence, according to the testimony of men familiar 
with conditions at Copenhagen, advances on free-port 
warehouse certificates may be had on more liberal 
terms than on the certificates of private warehouse 
companies. 

CONCLUSIONS. 

Such are the advantages, concisely stated, that may 
accrue from the establishment of a free-zone system. 
They are necessarily contingent, for the reason that 
they are found in a kind of commerce which for several 
generations has existed in this country in relatively 
insignificant amount. It is evident that the success 
of a free zone and all the claims that are made for it 
will depend on two things, namely, the volume and 
character of its commerce and the efficiency of its 
construction and operation. This explains why the 
results of European experience have differed in 
different ports. Some have not succeeded; others 
have made good returns on the capital invested in 
them, have reduced the expenses of shipowners and 
merchants, and have given a widely felt stimulus to 
business. Obviously, the free zone alone can not 
create commerce; it can only facilitate the operation 
of the forces that do create it. 

92621—18 2 



At the present time the commerce proper to a free 
zone exists in relatively small volume at tho ports of the 
United States; and since investments for construction 
and equipment would have to be made with a view to 
its future growth, they would be in large measure 
speculative. But many of the conditions formerly 
limiting American participation in international trade 
no longer exist, and within the last few years the 
joint influence of new forces has given to our com- 
merce an expansion that has taxed our port and 
harbor facilities even beyond their capacity. Active 
measures for the retention of this commerce after 
the war will be necessary; at the same time, its 
present importance and the possibility of its further 
development underlie the confidence of those who 
advocate a system of free zones. But at any Ameri- 
can port at which a free zone is proposed, before capi- 
tal is put into such an enterprise, there would be 
necessary a careful and detailed study both of the 
cost of construction and operation and of the likeli- 
hood of commercial expansion in the particular field 
to which free-zone facilities and privileges would be 
adapted. It is clear that costs and prospects would 
vary widely from port to port. Some are natural 
points for the consignment, distribution, and debouch- 
ment of goods; others are not. At all of the ports, 
however, where conferences were conducted by tho 
Tariff Commission — notably at New York, Philadelphia 
and San Francisco — merchants, shipowners, and other 
classes of business men regarded the establishment of 
a free zone as a wise measure of public policy and an 
enterprise promising financial profit. Resolutions of 
organizations in these and other cities, indicating the 
thoughtful opinion of business men, are included in 
the appendix to this report. There are also appended 
sycopated reports of hearings conducted by the Tariff 
Commission. 

The legislation proposed in the bill, comment on 
which forms the second part of this report, is merely 
permissive in character. It leaves the initiative to 
the locality and puts upon it all risk and responsibil- 
ity. In the judgment of the Tariff Commission this 
is as it should be. The Federal Government can give 
no preference to the ports of one State over those of 
another. Under the bill as drafted each State or 
political subdivision thereof is permitted, subject to 
general requirements that are the same for all, to 
establish and equip at its own expense a zone wherein 
foreign merchandise may be entered free of duty. 

After exhaustive study of foreign institutions and 
careful investigation of American conditions and 
mercantile opinion, the Tariff Commission recommends 
the policy of permitting the establishment of free 
zones in American ports, and indorses, with certain 
suggested amendments, the bill S. 4153, as shown in 
the reprint, analysis, and comment which follow. 



PART II. 

Proposed Legislation, with. Comment and. Suggested Amendments. 



INTRODUCTION. 

The bill considered in this report (S. 4153) was introduced in the Senate by Hon. Morris Sheppard on March 
21, 1918, and identically introduced in the House (H. R. 10892) by Hon. J. Y. Sanders, March 20, 1918. It 
was carefully drawn in consultation with the gentlemen mentioned, after full consideration of American condi- 
tions and a study of European legislation. Especial attention was given to the laws authorizing and con- 
trolling the privilege in the great free zones in the ports of Copenhagen and Hamburg. In the appendix will 
be found details of the law concerning Copenhagen, together with other legislation, either enacted or proposed, 
in other countries. All these laws and proposed laws recognize the same essentials as to plrysical requirements 
and Government control, and all propose practically identical methods of encouraging commerce and protecting 
revenue. 

The commission is of the opinion that the privileges granted in this general enabling act should be con- 
fined to public corporations, and to that end has suggested how the bill may be adapted to the exclusion of 
primary free-zone concessions to private individuals or corporations. 

The great facilities to be erected and established under the bill would necessarily be public in their nature 
and functions. If undertaken by none except public corporations, many restrictive requirements and penal- 
ties needed to prevent abuses under private management could safely be eliminated. While the commission 
believes that the primary grant should be made to public corporations under the State, there appears no objec- 
tion to concessions being made by the grantee to private persons or corporations whereby they may be permitted 
to establish their own buildings, piers, and other facilities. 

Should cases arise where private construction and ownership would appear to be the only or the best 
method of establishment, it would seem better to leave them to special legislation, in which the varying needs 
of each individual establishment could be specifically treated. 

The commission is further of the opinion that the bill should not exclude any United States territory from 
the possibility of enjoying the privilege, under the safeguards outlined in the bill, and therefore believes that 
section 2 should be amended, as indicated hereinafter, so as to permit the establishment of free zones in the 
United States, its Territories, and dependencies. There would seemingly be the possibility of both national 
and local benefit from the establishment of free zones in the Territories of Hawaii, Alaska, and Porto Rico. 
The Canal Zone, being held under treaty tenure for specific canal purposes and doubtless incapable of securing 
public funds apart from those of the Federal Government, does not come within the scope of the bill. 

With the amendments suggested herein, the commission indorses the bill as providing satisfactory condi- 
tions and safeguards, and commends it to the Congress for enactment. 

19 



S. 4153 H. E. 10892. 



S. 4153 H. R. 1089:*. 



As introduced in the Senate and House of 
Representatives. 

A BILL 

To provide for the establishment, operation, and maintenance of 
free zones in the ports of the United States, and for other 
purposes. 

Be it enacted, etc., 

That when used in this Act — 

The term "Secretary" means the Secretary of 
Commerce. 

The term "public corporation" means a State, a 
legal subdivision thereof, or a municipality. 

The term "private corporation" means a private 
corporation organized under the laws of the State 
within whose limits the free zone is located or is to 
be located, all the officers and directors of which are 
citizens of the United States. 

The term "applicant" means a public or private 
corporation applying for the right to establish, 
operate, and maintain a free zone. 

The term "grantee" means a public or private 
corporation to which the privilege of establishing, 
operating, and maintaining a free zone has been 
granted. 

Sec. 2. That the Secretary of Commerce is hereby 
authorized, upon application as hereinafter provided, 
to grant, at his discretion, to public or private cor- 
porations, the privilege of establishing, operating, and 
maintaining free zones in or adjacent to ports of 
entry in the continental United States, except Alaska 
and the Canal Zone, for such periods as he may 
determine, not exceeding fifty years, subject to all 
the conditions and restrictions of this Act and of the 
rules and regulations made thereunder. Not more 
than one free zone shall be authorized in or adjacent 
to any port of entry. The Secretary shall give prefer- 
ence to the applications of public corporations. 



Containing amendments suggested by United States 
Tariff Commission. 

A BILL 

To provide for the establishment, operation, and maintenance of 
free zones in ports of entry of the United States, and for other 
purposes. 

Be it enacted, etc., 

That when used in this Act — 

The term "Secretary" means the Secretary of 
Commerce. 

The term "public corporation" means a State, a 
legal subdivision thereof, or a municipality. 

The term "State" include Alaska, Hawaii, Porto 
Rico, and the Philippine Islands. 



The term "applicant" means a public corporation 
applying for the right to establish, operate, and main- 
tain a free zone. 

The term "grantee" means a public corporation to 
which the privilege of establishing, operating, and 
maintaining a free zone has been granted. 

Sec. 2. That the Secretary of Commerce is hereby 
authorized, upon application as hereinafter provided, 
to grant, at his discretion, to public corporations, the 
privilege of establishing, operating, and maintaining 
free zones in or adjacent to ports of entry in the con- 
tinental United States (except the Canal Zone), and 
in Hawaii, Porto Rico, and the Philippine Islands, 
for such periods as he may determine, not exceeding 
fifty years, subject to all the conditions and restric- 
tions of this Act and of the rules and regulations made 
thereunder. Not more than one free zone shall be 
authorized in or adjacent to any port of entry. 



The bill places the free-zone administration under the Secretary of Commerce, since 
the objects are primarily commercial. The establishment of free zones will not affect 
the customs revenue adversely. It is not a Treasury measure. 

The purpose is to eliminate as far as may be hindrances and delays to vessels and 
cargo and to facilitate foreign commerce. The Department of Commerce, now charged 
with the duty of encouraging foreign trade and with the duty of the administration of 
our navigation laws, is properly given supervision over the establishment, operation, and 
maintenance of the free zones. 

As noted in the introduction, the commission believes that the privilege offered by 
this general enabling act should be confined to public corporations. If, in any given 
case, the State or its subdivision should be unwilling or unable to take advantage of the 
act and private enterprise should seem needed, it would seem a proper subject for special 
legislation. But if, in the opinion of Congress, private corporations should be included 
among the possible concessionnaires, public corporations should be specifically preferred 
to them. 

As will be easily understood, the measure of control in the Federal interest, if relating 
to private grants, must be necessarily broader and more complicated than in the case of 
grants to public corporations. The commission has, by placing the original sections 
in parallel columns with sections that eliminate private ownership, together with com- 
ment, endeavored to clarify the action of Congress in the event of its deciding to prefer 
one to the other. 
20 



FREE ZONES IN PORTS OF THE UNITED STATES. 21 

"Not more than one free zone shall be authorized in or adjacent to any port of 
entry." The reason for such a provision is that one of the main functions of a free 
zone is to assemble cargo, to facilitate tho lading and unlading of vessels with dispatch 
and without the necessity of either moving the vessel from place to place or causing 
unnecessary handling of goods by lighters or other carriers. A division of free-zone 
territory in a port would scatter cargo and would add to the expense and difficulty 
of policing. 

Section 2 in the bill as introduced limits the granting of the privilege to the con- 
tinental United States, except Alaska and the Canal Zone, thereby excluding the island 
Territories of Hawaii and Porto Rico, the continental Territory of Alaska, and the island 
dependencies of the United States, of which the Philippine Islands are the most impor- 
tant. It is conceivable that there might be advantage in the establishment of free 
zones in both island dependencies and Territories, and also in the Territory of Alaska, 
where great circle sailing and the presence of coal, together with other natural resources 
suitable for export, might eventually create a demand for a large transshipment trade. 

As stated in the introduction, the Canal Zone is under an entirely different legal 
tenure from the Territories and dependencies, and although there might prove special 
need and justification for the establishment there of a transshipment point, this should 
be a matter of subsequent and necessarily different treatment. Such an institution 
established in the Canal Zone would doubtless be under direct and complete Federal 
operation and control, and in all probability would necessarily be established by direct 
Federal appropriation. 

The commission therefore recommends that original section 2, whether or not private 
corporations are to be allowed the privilege, be amended (page 2, line 12, S. 4153, line 14, 
H. Pi. 10892) so as to read (except the Canal Zone), and in Hawaii, Porto Rico, and the 
Philippine Islands, for such periods as he, etc., as indicated in the right-hand column above. 

Sec. 3. That in every free zone vessels or other Sec. 3. (Same as sec. 3 in bill as introduced.) 
carriers may land, lade and unlade, free from all 
customs supervision, control, duties, or charges, except 
as otherwise provided in this Act, and merchandise or 
articles of any description whatever, except such as 
are prohibited by law, may with like freedom be 
brought into or landed in a free zone, and there broken 
up, repacked, assembled, distributed, sorted, refined, 
graded, cleaned, manufactured, or otherwise manipu- 
lated, mixed with foreign or domestic merchandise, 
and exported therefrom in. the original package or 
otherwise. W*g Wt~ 

The territory embraced in a free'zone shall, so far 
as customs duties and regulations are concerned, be 
exempt from the customs laws of the United States, 
except as otherwise provided in this Act; but when 
goods are sent from a free zone into any of the customs 
territory of the United States or its possessions, they 
shall be subject to all of the customs laws and regula- 
tions and, under regulations prescribed by the Secre- 
tary of the Treasury, pay the same duties as if im- 
ported from a foreign country. 

Vessels entering or leaving affree zone shall not be 
exempted from the operation of any of the laws of the 
United States, except as otherwise provided in this 
Act, and vessels leaving'a free zone and arriving at 
customs ports within the United States or its posses- 
sions shall be treated as if coming from foreign terri- 
tory in so far as customs laws and regulations are 
concerned. 

AD vessels built or repaired within a free zone, unless 
the materials used in such building or repair are of 
domestic production, or have paid the duties, if any, 
required by law at the time of the use of such dutiable 
materials, shall be deemed to have tf been built or repaired 
in a foreign country. 

The legislation will in no way affect existing laws concerning navigation, postal 
service, public health, or immigration. 

The last paragraph of section 3, pertaining to the building or repair of vessels in the 
free zone, was incorporated to conform to existing navigation laws, and, subject to the 



22 FBEE ZONES IN PORTS OF THE UNITED STATES. 

payment of the duties in effect upon the materials used in building or repair, to allow 
vessels built in a free zone the same privileges as if they were built in the customs territory 
of the United States. Repairs to a vessel in a free zone will not change its status. 

The proposed legislation in no wise interferes with any established policy as con- 
cerns ship registry. The zone secures no advantage over customs territory in the function 
of shipbuilding or repairing. 

Sec. 4. That each application shall state in detail :fpj Sec. 4. (Same as sec. 4 in bill as introduced.) 

(1) The physical qualifications of the location where *i 
it is proposed to establish the free zone, showing (a) 
the land and water or land or water area, or land area 
alone if the application is for its establishment in or 
adjacent to an interior port; (b) its ease of isolation 
from customs territory; (c) the natural fitness of the 
area for a free zone; and (d) the possibilities of future 
expansion of the area of the zone; 

(2) The facilities and appurtenances which it is pro- 
posed to provide; 

(3) The time within which the applicant proposes 
to commence and complete the work of the construc- 
tion of the zone and of such facilities and appurte- 
nances ; 

(4) The residential population within the proposed 
location ; 

(5) The present and prospective foreign, domestic, 
and transshipment commerce which would make use 
of the zone; 

(6) The financial ability of the applicant, and the 
method proposed to finance the undertaking ; and 

(7) Such other information as the Secretary may 
require to enable him to determine whether the appli- 
cant should receive a grant. 

It seems necessary to have the applications set forth certain essential facts to the 
Secretary, so that as full an understanding as possible of all of the conditions may be 
had by him prior to his assuming the task of investigation. The Secretary may require 
further information, and is not limited by the bill to the enumerated requirements. 

Sec. 5. That if the Secretary finds that the proposed Sec. 5. (Same as sec. 5 in bill as introduced.) 

location is not suitable for a free zone, or that the 
facilities and appurtenances which it is proposed to 
provide are insufficient, or finds for any other reason 
that the application should not be granted, he may 
refuse to make the grant or he may permit the amend- 
ment of the application within such reasonable time 
and in such manner as in his judgment is proper. 

Sec. 6. That the applicant, if a private croporation, 
shall file with its application a bond in such form and 
with such sureties as the Secretary may require, in 
an amount equal to not less than ten per centum of 
the total estimated cost of the undertaking, condi- 
tioned upon the completion, within the time specified 
in the application, of the construction of the free zone 
and its facilities and appurtenances. 

If the application is amended, a substitute bond 
shall be filed covering the conditions specified in the 
amended, application; and if in the opinion of the 
Secretary the estimate of the cost of the undertaking 
is too low, he shall require an additional bond. 



In the case of a private corporation the giving of 
such a bond will show good faith upon the part of the 
applicant, and at the same time protect the Govern- 
ment from speculative and ill-considered applications. 



FREE ZONES IN PORTS OF THE UNITED STATES. 23 

Sec. 7. That the Secretary is hereby authorized Sec. 6. That the Secretary is hereby authorized 

and directed to prescribe such rules and regulations and directed to prescribe such rules and regulations 

as may be necessary, in his judgment, concerning the as may be necessary, in his judgment, concerning the 

application, the grant of the privilege, the construction, application, the grant of the privilege, the construc- 

operation, and maintenance of the free zone and its tion, operation, and maintenance of the free zone and 

facilities and appurtenances, the length of time after its facilities and appurtenances, the length of time 

the grant of the privilege within which the construe- after the grant of the privilege within which the 

tion shall start and within which the work shall be construction shall start and within which the work 

completed and the free zone opened for business, shall be completed and the free zone opened for 

and all other matters relating to the carrying out of business, and all other matters relating to the carrying 

this Act. out of this Act. 

Nothing in such rules and regulations shall interfere 
with the Taws, rules, or ordinances of the State, sub- 
division, or municipality in which the free zone is 
situated, nor with the protection of the revenues of 
the United States, except as authorized by the terms 
of this Act. 

The Secretary shall cooperate with such State, The Secretary shall cooperate with the State, sub- 
subdivision, and municipality, in the exercise of their division, and municipality in which the free zone is 
police, sanitary, and other powers in and in connection located, in the exercise of their police, sanitary, and 
with the free zone. He shall also cooperate with the other powers in and in connection with the free zone. 
United States Customs Service, the Post Office He shall also cooperate with the United States Customs 
Department, the Public Health Service, the Bureau Service, the Post Office Department, the Public 
of Immigration, and such other Federal agencies as Health Service, the Bureau of Immigration, and such 
have jurisdiction in the ports of the United States. other Federal agencies as have jurisdiction in ports 

of entry described in section two. 

The clear intent of the bill is not to impinge unnecessarily upon the rights and 
duties of the State or its legal subdivision as concerns matters under the police power 
or the power of general taxation. The first sentence of the second paragraph, however, 
seems, to be needlessly restrictive. 

It would appear that the safest provision would be'a general one, making it manda- 
tory on the Secretary to recognize and cooperate with the State and local requirements, 
and also to cooperate with such Federal agencies as have jurisdiction in United States 
ports. 

Sec. 8. That for the purpose of facilitating the Sec. 7. (Same as sec. 8 in bill as introduced.) 

investigations of the Secretary and his work in the 
granting of the privilege, in the establishment, oper- 
ation and maintenance of a free zone, and in the exer- 
cise of the administrative functions over the zone *, 
the President may direct the Executive Departments 
and other establishments of the Government to 
cooperate with the Secretary, and for such purpose 
each of the several departments and establishments 
are authorized, upon the direction of the President, 
to furnish to the Secretary such records, papers, and 
information in their possession as may be required 
by him, and temporarily to detail to the service of 
the Secretary such officers, experts, or engineers as 
may be necessary. 

"*same"inH. R. 10892. 

As other departments of the Federal Government have certain powers and duties 
in the harbors of the United States, it seems advisable to authorize the Secretary of 
Commerce to call for assistance by officials of such departments. In this connection 
he would doubtless utilize : g 

The Corps of Engineers of the Army as to harbor conditions. 
The Post Office Department as to the Postal Service. j 

The Department of Labor as to the Immigration Service. . • \ 

The Treasury Department as to the customs gate to the home country.^ ^ 
The enforcement of laws concerning navigation and seamen is lodged in the Department of 
Commerce. 



24 



FREE ZONES IN POETS OF THE UNITED STATES. 



Sec. 9. That if the title to or right of user of the Sec. 8. (Same as sec. 9 in bill as introduced.) 
property to be acquired rests in the United States, a 
contract of lease may be entered into between the 
grantee of the privilege and the department or govern- 
mental establishment of the United States having 
direct charge and supervision of such property, for 
such a term of years and under such conditions and 
with such regulations as may be agreed upon between 
the grantee and such department or governmental 
establishment of the United States, with the approval 
of the Secretary. 

Large areas of unused, available land, well suited to free-zone purposes, are owned 
in some of the ports by the United States. There will doubtless be cases requiring the 
filling of areas, recognized as navigable water, now under Federal jurisdiction. 



Sec. 10. That the grantee is hereby granted the 
right to condemn the necessary area in land and water 
or land or water, and subsequently to condemn such 
additional area of land and water or land or water as 
from time to time the Secretary may deem necessary. 
Such condemnation shall be subject in all respects 
as nearly as may be to the obligations, restrictions, 
payments, and procedure, now or hereafter provided 
by the law of the State, in which the free zone is or is 
to be located, for the exercise of the right of eminent 
domain by such corporations. If the original area 
acquired is not sufficient for the purpose and the 
grantee neglects or refuses, after due notice by the 
Secretary, to acquire such additional area, the grant 
may be revoked by the Secretary, upon giving one 
year's notice, and the privilege granted to others, in 
the same manner as provided in section twenty. 

The area included or to be included in the free zone 
shall be considered as used for a public utility and in 
appraising the value thereof for condemnation, or by 
agreement, there shall not be taken into consideration 
and eventual increases in value which may be predi- 
cated by reason of such area being included within the 
free zone, or any value in excess of the fair value as 
determined at the time of acquisition. 



Sec. 9. That the grantee is hereby granted the right 
to condemn the necessary area in land and water or 
land or water, and subsequently to condemn such 
additional area of land and water or land or water as 
from time to time the Secretary may deem necessary. 
Such condemnation shall be subject in all respects 
as nearly as may be to the obligations, restrictions, 
payments, and procedure, now or hereafter provided 
by the law of the State, in which the free zone is or is 
to be located, for the exercise of the right of eminent 
domain by railroad corporations. If the original 
area acquired is not sufficient for the purpose and the 
grantee neglects or refuses, after due notice by the 
Secretary, to acquire such additional area, the grant 
may be revoked by the Secretary, upon giving one 
year's notice, and the privilege granted to others, in 
the same manner as provided in section seventeen. 

The area included or to be included in the free zone 
shall be considered as used for a public utility and in 
appraising the value thereof for condemnation, or by 
agreement, there shall not be taken into consideration 
any eventual increases in value which may be predi- 
cated by reason of such area being included within the 
free zone, or any value in excess of the fair value as 
determined at the time of acquisition. 



To the end that the grantee may secure the requisite area, and that the rights of all 
parties may be amply protected, it is necessary to grant the right of condemnation, both 
for the original establishment and for the acquisition of such additional area as from time 
to tune, in the judgment of the Secretary of Commerce, may be found necessary. 

In order to make clear the method to be pursued in such condemnation proceedings, 
the word "such" in line 24, page 7, S. 4153, line 23, page 7, H. K. 10892, should be 
stricken out and the word railroad substituted therefor. It is thought advisable to 
make this process of condemnation conform to the State rather than the Federal law, 
since the territory included in the free zone does not thereby become Federal property 
but remains under the jurisdiction of the State within which the zone is located. 



Sec. 11. That each grantee shall provide and main- 
tain in connection with the free zone — 

(a) Adequate slips, docks, warehouses, loading, 
unloading, and mooring facilities; 

(b) Adequate railroad connections with the sur- 
rounding territory and with all parts of the United 
States, so arrangeed as to permit of proper guarding 
and inspection of railroad cars for the protection of 
the revenue; 

(c) Adequate facilities for coal or other fuel and for 
light and power ; 

(d) Adequate water and sewer mains; 

(e) Adequate quarters and facilities for handling 
incoming and outgoing mail, and for United States, 
State, and municipal officers whose presence may be 



Sec. 10. That each grantee shall provide and main- 
tain in connection with the free zone — 

(a) Adequate slips, docks, warehouses, loading, 
unloading, and mooring facilities; 

(b) Adequate railroad connections with the sur- 
rounding territory and with all parts of the United 
States, so arranged as to permit of proper guarding 
and inspection of railroad cars for the protection of 
the revenue; 

(c) Adequate facilities for coal or other fuel and for 
light and power; 

(d) Adequate water and sewer mains; 

(e) Adequate quarters and facilities for handling 
incoming and outgoing mail, and for United States, 
State, and municipal officers whose presence may be 



FREE ZONES IN POETS OF THE UNITED STATES. 



25 



necessary within the zone. The charges for such 
quarters and facilities shall in no event he greater than 
charges for like spaco and buildings to other users. 
With the consent of the Secretary, the grantee may 
permit private persons, firms, corporations, or associa- 
tions to erect such buildings ana other structures as 
will meet their particular requirements. 



necessary within the zone. The charges for such 
quarters and facilities shall in no event be greater than 
charges for like space and buildings to other users. 

With the consent of the Secretary and under reason- 
able and uniform regulations for like conditions and 
circumstances, the grantee may permit private persons, 
firms, corporations, or associations to erect such build- 
ings and other structures as will meet their particular 
requirements. 



The commission suggests that after the word "Sec- 
retary", in line 5 of page 9 of both Senate and House 
bills, the following clause be inserted: 

and under reasonable and uniform regulations for like 
conditions and circumstances 

This proposed amendment merely strengthens the 
requirement of uniform and reasonable treatment to 
those using the zone, whether under the original 
grantee or a concessionnaire of the grantee. 

These facilities must be provided. In the main, there will be standardization of 
equipment and buildings within the zone, but in many cases it would be of advantage to 
permit construction especially adapted to the specific uses of a concessionnaire. 

As examples, buildings for manufacturing, cleaning, or repacking should be spe- 
cifically adapted to their purposes. Concessionnaires should be allowed latitude, under 
general restrictions, in the erection of buildings for exhibits, salesrooms, offices, etc. 



Sec. 12. That each free zone is hereby declared to 
be a public utility, and the grantee shall afford to all 
who may apply therefor the use of the zone and its 
facilities and appurtenances, and uniform treatment in 
respect to all services rendered them by the grantee 
under like conditions and circumstances, subject to 
such treaties or commercial conventions as are now in 
force or may be hereafter made from time to time by 
the United States with foreign countries. 

All rates and charges for all services within the free 
zone shall be fair and reasonable for the particular 
service rendered, and shall be subject to control and 
regulation by the Secretary, and may be changed by 
him upon six months' notice filed with the grantee, 
which shall be published in some newspaper within the 
limits of the State wherein the free zone is located and 
in such other manner as the Secretary may prescribe. 

If the grantee refuses without reasonable cause to 
afford equal facilities and privileges at equal rates 
under like conditions and circumstances to all who 
may apply therefor, any person damaged by such 
refusal may recover in a suit against the grantee, in 
any court of competent jurisdiction, double the amount 
of damages resulting from such refusal. 



Sec. 11. That each free zone is hereby declared to 
be a public utility, and the grantee shall afford to all 
who may apply therefor the use of the zone and its 
facilities and appurtenances, and uniform treatment 
in respect to all services rendered them by the grantee 
under like conditions and circumstances, subject to 
such treaties or commercial conventions as are now in 
force or may be hereafter made from time to time by 
the United States with foreign countries. 

All rates and charges for all services or privileges 
within the free zone shall be fair and reasonable for the 
particular privilege granted or service rendered, and 
shall be subject to control and regulation by the Secre- 
tary, and may be changed by him upon six months' 
notice filed with the grantee, which shall be published 
in some newspaper within the limits of the State 
wherein the free zone is located and in such other man- 
ner as the Secretary may prescribe. 

If the grantee refuses without reasonable cause to 
afford equal facilities, privileges, and services at equal 
rates under like conditions and circumstances to all 
who may apply therefor, any person damaged by such 
refusal may recover in a suit against the grantee, in 
any court of competent jurisdiction, double the amount 
of damages resulting from such refusal. 



The amendments suggested by the commission to 
this section are: 

Page 9, line 18, S. 4153, and line 17, H. R. 10892, 
after the word "services" insert the words or privi- 

If COBS 

Page r 9, line 19, S. 4153, and line 18, H. R. 10892, 
after the word "particular" insert the words privilege 
granted or. 

Page 10, line 2, in both bills, strike out the word 
"and", insert a comma in lieu thereof; and after the 
word "privileges" insert , and services. 

These amendments are suggested for the reasons 
stated in connection with the suggested amendments 
to the preceding section. 



26 



*REE ZONES IN PORTS OF THE UNITED STATES. 



The free zone being a public utility, all charges should be equal for like services, 
and should be under the supervision of the Secretary to the end that they be kept reason- 
able. 

The provision as to treaties and conventions reserves the question of foreign relations. 

As the function of the zone is to aid foreign commerce, it would seem the proper 
policy to encourage the entry of vessels and to provide against discrimination, unless 
such discrimination were exacted by treaty or by general legislation. 



Sec. 13. That except under permits granted under 
regulations prescribed by the Secretary, no person 
shall be allowed to reside within the limits of the 
zone, except guards and officers of the grantee or of 
the United States or of the State or subdivision or 
municipality thereof in which the zone is located, 
whose presence at all tunes is essential for the safety 
and policing of the zone and the protection of the rev- 
enue; nor sba 11 ^ny person remain within the zone 
outside of ore amy business hours, unless he is actu- 
ally working in connection with the handling of ves- 
sels, their cargoes, or the merchandise or articles 
stored or bemg handled, manufactured, or otherwise 
manipulated within the zone. 

No retail trade shall be conducted within the zone, 
except the sale of ships' stores, and the sale of neces- 
sary food to employees and workmen for consump- 
tion within the zone. All foreign dutiable goods shall, 
before being so sold within the free zone, have paid 
the regular duty through the custom house. The 
Secretary of the Treasury shall appoint the necessary 
customs officers and guards to protect the revenue, 
whose salaries shall be reimbursed to the Treasury by 
the grantee semi-monthly. 



Sec. 12. That except under permits granted under 
regulations prescribed by the Secretary, no person 
shall be allowed to reside within the limits of the zone, 
except guards and officers of the grantee or of the 
United States or of the State or subdivision or munic- 
ipality thereof in which the zone is located, whose 
presence at all times is essential for the safety and 
policing of the zone and the protection of the revenue; 
nor shall any person remain within the zone outside 
of ordinary business hours, unless he is actually work- 
ing in connection with the handling of vessels, their 
cargoes, or the merchandise or articles stored or 
being handled, manufactured, or otherwise manipu- 
lated within the zone. 

No retail trade shall be conducted within the zone, 
except the sale of ships' stores, and the sale of neces- 
sary food to employees and workmen for consumption 
within the zone. All foreign dutiable goods shall, 
before being so sold or taken from the original package 
for use within the free zone, have paid the regular duty 
through the custom house: Provided, That nothing 
herein contained shall make dutiable any equipment 
or property of any ship used within the zone. 

The Secretary of the Treasury shall appoint the 
necessary customs officers and guards to protect the 
revenue, whose salaries shall be reimbursed to the 
Treasury by the grantee semi-monthly. 



The amendments suggested by the commission to 
this section are: 

Page 10, line 23, S. 4153, and line 22, H. R. 10892, 
after the word "sold" insert the words or taken from 
the original package for use. 

Page 10, line 25, S. 4153, and line 24, H. R. 10892, 
after the word "house" strike out the period, insert a 
colon in lieu thereof, and add the following clause: 

Provided, That nothing herein contained shall make 
dutiable any equipment or property of any ship used 
within the zone. 

The intent of the bill as drafted, and in accord with 
the amendments suggested by the commission, is 
that there should be no privilege granted within the 
zone as concerns imported goods not equally shared 
by customs territory. This goes to the extent of pre- 
venting the use of imported equipment, foodstuffs, 
ships' stores, etc., without pa}mient of duty. 

It is necessary, however, that it be clearly recog- 
nized that the actual equipment and property of ves- 
sels used during their stay in the zone should be 
exempt from customs duties. The last amendment 
above mentioned is therefore suggested to that end. 

In the port of Copenhagen the materials used in the 
buildings and equipment of the zone are exempt from 
customs duties as long as they remain within the 
zone. This has proven satisfactory there, but the 
commission has received no complaint against the 
provision proposed in the bills under discussion. 



FREE ZONES IN PORTS OF THE UNITED STATES. 27 

For the effective protection of the revenue, no persons except those whose employ- 
ment specifically so requires should reside in the zone, nor should imported goods be con- 
sumed therein unless duties are paid. The zone should not in anyway be considered as "free- 
trade" territory. 

The question of who should pay the expense of customs administration for dutiable 
goods going through the customs gate to the home country is debatable. If this customs 
gate represents merely an added expense, such expense should be met by the zone. 

If, on the other hand, the zone should create, by its stimulus to foreign trade in gen- 
eral, a large increase of customs revenue, the Treasury Department might properly be called 
upon for the additional cost. The free port at Hamburg pays such customs expenses. At 
the free port of Copenhagen the service is contributed by the Danish Government. 

Sec. 14. That the form and maimer of keeping the Sec. 13. (Same as sec. 14 in bill as introduced.) 

accounts of each free zone shall be prescribed by the 
Secretary. 

Each grantee shall make to the Secretary annually, 
and at such other times as he may prescribe, reports 
containing a full statement of all the operations of the 
zone, including all information which the Secretary 
may require, and including a detailed statement of 
receipts and expenditures. 

The Secretary shall make a report to Congress on 
the first day of each regular session, containing a sum- 
mary of the operations and fiscal conditions of each 
free zone, and transmit therewith copies of the annual 
report of each grantee. 

To facilitate the supervision of the accounts by the Secretary, the method of accounting must be 
standardized. 

The national service to be rendered is one of great public concern and interest, and there is nothing 
in the nature of the enterprise that should not be a matter of common knowledge. 

Sec. 15. That if the grantee is a private corporation, 
the issuance of evidence of capital investment shall be 
subject to the approval of the* Secretary, and the 
amount issued shall not be in excess of the actual 
amount necessary for the acquisition of the location of 
the zone and for the furnishing of the facilities and 
appurtenances required for its establishment, opera- 
tion, and maintenance. 

Each bond and other obligation of such grantee shall 
contain a provision that it shall be subject to call (at 
such price, not exceeding one hundred and five per- 
centum of the par value thereof as may be specified in 
such bond or obligation, with the approval of the 
Secretary) at the expiration of five years after the 
issue thereof, or at the expiration of each five years 
thereafter. 



The provisions contained in this section are deemed 
necessary so that, in case a public corporation should 
wish to take over the project, an exorbitant price 
could not be demanded by reason of inflated securities. 
The five-year periods are thought to be just and fair. 



Sec. 16. That if the grantee is a private corporation 
any surplus remaining after the payment of operating 
expenses, interest on its bonds or other obligations, 
and the setting aside of such amount for depreciation 
as the Secretary may from time to time prescribe may 
be used for the payment of dividends upon the stock 
of the corporation at such rate as the Secretary may 
prescribe at the beginning of each ten year period of 
the term of the grant. 

Any surplus remaining after the payment of such 
dividends shall be used in the purchase and cancella- 



28 



FREE ZONES IN" POETS OF THE UNITED STATES. 



tion of the bonds and other obligations of the corpora- 
tion. Such purchase shall be made at such prices as 
the Secretary may prescribe (not exceeding one 
hundred and five percentum of the par value thereof), 
except that at the expiration of each five-year period 
after the issue thereof the grantee shall, at the discre- 
tion of the Secretary, use any such surplus then 
existing for the call of such amount of its bonds or 
other obligations as the Secretary may prescribe at the 
prices specified in such bonds or obhgations as provided 
in section fifteen. 



On account of the inability to forecast conditions of 
the future, it seems advisable to leave interest and 
dividend rates to the discretion of the Secretary. In 
the fixing of charges, without possibility of an accurate 
forecast of earnings from services to be rendered, pre- 
liminary rates would naturally be placed at such 
figures as would be expected not only to meet fixed 
charges, dividends, and depreciation, but also to yield 
a small surplus, such surplus, if earned, to be applied 
as indicated. 



Sec. 17. That the grantee shall not sell, transfer, set 
over, assign or mortgage the privilege, or any portion 
thereof, for all or any portion of the term for which it is 
granted, except with the approval of the Secretary: 
Provided, That this provision, in case the grantee is a 
private corporation, shall not prevent the sale and 
transfer of stock in such corporation. 



Sec. 14. That the grantee shall not sell, transfer, 
set over, assign or mortgage the privilege, or any 
portion thereof, for all or any portion of the term for 
which it is granted, except with the approval of the 
Secretary : Provided, . That this provision shall not 
prevent the issuance, sale, and transfer of stock by the 
grantee for the establishment, operation, and main- 
tenance of the zone. All sales and transfers of such 
stock shall be subject to the approval and permission 
of the Secretary, and shall be registered with and by 
him under such rules and regulations as he may deem 
necessary. No stock so issued shall at any time be 
given, sold, or transferred to any person not a citizen 
of the United States. 



Sec. 18. That upon the expiration of the period of 
the grant, the Secretary may, at his discretion, make 
a new grant (giving preference to the corporation 
enjoying the grant at the time of such expiration) in 
the same manner and under the same conditions, 
restrictions, rules, and regulations as are provided in 
this Act for the application for and grant of the 
privilege, and the grantee shall likewise be subject to 
all the conditions and restrictions of this Act and of the 
rules and regulations prescribed thereunder. 



Sec. 15. (Same as sec. 18 in bill as introduced.) 



If the bill shall permit grants to private corporations 
or individuals, it should require that stock should not 
be owned by others than citizens of the United States, 
and that stock shall be registered with the Secretary, 
and all transfers made only with his approval. 

The following amendment to original section 17 is 
therefore suggested: 

Page 13, fine 7, S. 4153 and H. R. 10892, change the 
period at end of line to a colon, and add the following: 



Provided further, That all sales and transfers of such 
stock shall he subject to the approval and permission oj 
the Secretary, and shall be registered with and by him 
under such rules and regulations as he may deem neces- 
sary: And provided further, That no stock so issued 



The amendments suggested by the commission to 
section 17 are: 

Page 13, fine 5, S. 4153 and H. R. 10892, strike out 
the comma after the word "provision" and the rest 
of the fine. 

Page 13, fine 6, S. 4153 and H. R. 10892, strike out 
the word "corporation" and the following comma; 
after the word "the" insert the word issuance, and 
insert a comma after the word "sale". 

Page 13, line 7, S. 4153 and H. R. 10892, strike out 
the whole fine and insert the following: 

by the grantee for the establishment, operation, and 
maintenance of the zone. All sales and transfers of 
such stock shall be subject to the approval and permission 
of the Secretary, and shall be registered with and by him 
under such rules and regulations as he may deem neces- 



FREE ZONES IN PORTS OF THE UNITED STATES. 29 

shall at any time he given, sold, or transferred to any sary. No stock so issued shall at any time be given, 
persan not a citizen of the United States. sold, or transferred to any person not a citizen of the 

United States. 

These amendments are suggested to the end of 
preventing any possible nullification of the purpose of 
the zone through stock control by persons hostile to 
the policy and purpose of its establishment and opera- 
tion. 

The need of reasonable safeguards as provided in sections 17 and 18 is obvious. The 
Supplement to Commerce Reports (No. 15-D) for September 2, 1915, contains the follow- 
ing passage concerning the proposed establishment of a free port at Cadiz, Spain: 

At the close of December, 1914, the Government presented to the Spanish 
Parh anient a bill, which there is every reason to believe will be accepted in its 
main lines at least, empowering the Government to concede the establishment of 
free zones in such Spanish ports as may be suitable to a company expressly 
organized for this purpose or a board of harbor works, to a chamber of commerce 
or of trade, or to a municipality directly interested in such an undertaking. 
* * * The body obtaining the concession can not transfer it without per- 
mission of the Government. In no case will concessions of any kind be made 
within the zone except to Spaniards or to Spanish companies of winch the majority 
of the board of directors are Spanish citizens. 
Restrictive provisions similar to those mentioned in the above quotation are con- 
tained in the law authorizing the creation and operation of the free port at Copenhagen 
(see Appendix, p. 77) and in a bill proposing the establishment of free zones in France 
submitted to the French Chamber of Deputies in 1914 (see Appendix, p. 92). 

Sec. 19. That the grant may be surrendered by the Sec. 16. (Same as sec. 19 in bill as introduced.) 
grantee at any time after the expiration of ten years 
after the completion and opening of the free zone for 
business, upon one year's notice in writing to the 
Secretary and under such rules and regulations as the 
Secretary may prescribe. In the event of such sur- 
render the United States shall incur no liability nor 
shall it pay any remuneration to such grantee in any 
manner whatever. 

Sec. 20. That if a grant is so surrendered, or if a Sec. 17. That if a grant is so surrendered, or if a 

grant is forfeited under section twenty-six the Secre- grant is forfeited under section twenty, the Secretary 
tary may proceed to grant the privilege to a public or may proceed to grant the privilege to a public cor- 
private corporation, the public corporation having poration in the same manner and under the same con- 
the preference, in the same manner and under the ditions, restrictions, rules, and regulations as are pro- 
same conditions, restrictions, rules, and regulations vided in this Act for the application for and grant of 
as are provided in this Act for the application for and the privilege, and the grantee shall likewise be subject 
grant of the privilege, and the grantee shall likewise to all the conditions and restrictions of this Act and 
be subject to all the conditions and restrictions of this of the rules and regulations prescribed thereunder. 
Act and of the rules and regulations prescribed there- 
under. 

It would seem impossible to hold the grantee longer than for ten years to a con- 
tract that might conceivably be carried on at a loss. 

If the privilege were surrendered, the equipment would remain in the possession of 
the grantee. In that event the Government might condemn and take over the property 
or permit another corporation to take it over, in which event the new grantee would 
have the right to condemn the property. The Government might grant a new privilege 
in a different location in or adjacent to the port of location. With or without a new 
grant in a new location, the Government may, at its option, leave esisting improvements 
with the original grantee, to be operated as in the case of other territory within the 
customs jurisdiction. 

Sec. 21. That if the grantee is a private corporation 
the United States or the State or subdivision or munic- 
ipality thereof, within which the free zone is located 
shall, in the order named, have the right to take over 
the zone, together with its buildings, equipment, 
facilities, and appurtenances, at any time after the 
expiration of five years from the completion of the 
zone and the opening thereof for business, upon giv- 
ing one year's notice of its intention to do so, and the 



30 FKEE ZONES IN PORTS OF THE UNITED STATES. 

payment, within such year, of a sum equal to not less 
than one hundred and ten nor more than one hundred 
and fifteen per centum (or, if such taking occurs after 
twenty-five years of the term have expired, of a sum 
equal to one hundred per centum) of the par value of 
the evidences of capital investment issued as provided 
for in this Act and outstanding at the time of such 
taking over, less an amount equal to the sum which 
at such time is or should be, under the order of the 
Secretary, set aside for depreciation, and less a proper 
allowance (to be fixed by the Secretary in case of dis- 
agreement) if the zone and its buildings, equipment, 
facilities, and appurtenances have not been kept in 
good order and repair, ordinary wear and tear ex- 
cepted. 

The privilege of operating and maintaining any free 
zone so taken over shall automatically pass to and be 
vested in the United States or in such public corpora- 
tion, as the case may be, for the remainder of the term 
for which granted, but such privilege shall not be con- 
sidered as an element of value in such transaction. 



While granting assurance that the property would 
not be taken from private investors except at a price 
protecting a reasonable profit, provision is made for 
possible transfer from what may be considered less 
desirable private ownership to more desirable public 
ownership without the possibility of incurring inflated 
values. 



Sec. 22. That if any free zone is so taken over by 
the United States, it shall be operated and maintained 
under the direction of the Secretary. 

If so taken over by a public corporation, it shall be 
operated and maintained in the same manner and 
subject to the same conditions, restrictions, rules, and 
regulations as if the grant had been made to such 
public corporation in the first instance. 



Inasmuch as the issuing of all securities represent- 
ing capital investment must be by the consent and 
under the supervision of the Secretary, it was thought 
equitable to place the value at from 110 to 115, with 
provision for depreciation and surplus. In this way 
the investment is made more stable and the security 
holders will at all times know that, if taken over, their 
investment will not show a loss. 



Sec. 23. That if a public corporation has received a 
grant, or if the United States or a public corporation 
has taken over a free zone under section twenty-one, 
and it appears to the Secretary that it is to the mani- 
fest interest of the public or of the United States or 
of the State or sub-division or municipality thereof in 
which such zone is located, that the zone should be 
operated and maintained by a private corporation, 
then the Secretary, on behalf of the United States (or, 
if the grantee is a public corporation, on behalf of 
such corporation and with its consent), shall, after 
due notice by publication of the facts for ninety days 
in some newspaper published within the limits of the 
State wherein the zone is located, upon application 
in such form and with such conditions as he requires, 
grant the privilege of operating and maintaining such 
zone for the remainder of the term and sell such zone, 
together with its buildings, equipment, facilities, and 



FREE ZONES IN PORTS OF THE UNITED STATES. 



31 



appurtenances, to a private corporation, upon such 
terms and conditions as he decides are equitable and 
reasonable. 

If the zone has been so taken over by the United 
States and it appears that a public corporation is 
desirous of operating and maintaining such zone, the 
application of such public corporation shall have the 
preference over the grant to a private corporation 
provided for in the preceding paragraph. 

The operation and maintenance of the zone under 
such grant as is provided for in this section shall be 
conducted in the same manner and subject to the 
same conditions, restrictions, rules, and regulations as 
if the grant had been made to the grantee in the first 
instance. 

Sec. 24. That in the event of war or other national 
emergenc} 7 the President may take over, occupy, and 
use any part or all of any free zone, or its facilities or 
appurtenances, for such time as the exigencies of the 
case demand. The damage suffered by the grantee 
by reason of such taking, occupation, and use shall 
be determined by agreement between the grantee and 
the President. If no such agreement is made, the 
President may pay to the grantee an amount equal to 
seventy-five per centum of the estimated amount 
which would be due as just compensation, and the 
grantee may bring suit in the Court of Claims for an 
amount which, when added to the sum received from 
the President, would constitute just compensation for 
the property taken. 

Sec. 25. That in case of a violation of this Act, or 
any regulation of the Secretary under this Act, by the 
grantee, such grantee, if a private corporation, shall 
be fined not more than $1,000. If the grantee is a 
public corporation, any officer, agent, or employee 
thereof responsible for or permitting any such viola- 
tion shall be subject to a like fine. Each day during 
which a violation continues shall constitute a separate 
offense. 

Sec. 26. That if the Secretary finds that any grantee, 
by reason of repeated violations of this Act or of the 
regulations of the Secretary under this Act, is failing 
to maintain and operate the zone in such manner as 
adequately to serve the public, he may revoke the 
grant. 

The amendments suggested by the commission to 
section 25 are: 

Page 17, lme 7,. S. 4153 and H. R. 10892, transpose 
the words "estimated amount" to read "amount 
estimated," and insert after the word "estimated" 
the words by Mm. 

Page 17, line 8, S. 4153 and H. R. 10892, strike out 
the words "which would' and insert in lieu thereof 
the word to. 

Page 17, line 9, S. 4153 and H. R. 10892, insert after 
the comma at the end of the line the words if any, 

Page 17, lines 14 and 15, S. 4153 and H. R. 10892, 
strike out both lines except word "any" at end of 
line 15. 

Page 17, line 17, S. 4153 and H. R. 10892, strike 
out the word "like," and after the word "fine" insert 
the following: of not more than $1,000. 

The right of the Secretary to revoke the grant of the privilege for repeated violations 
of the law or regulations might at first glance appear drastic, but when it is considered 
that the privilege is, by the terms of the bill (see sec. 2), a monopoly and that the grantee 
by a nonobservance of the laws and regulations may nullify the policy in any particular 
port, it becomes apparent that severe penalties may properly be required. 



Sec. 18. That in the event of war or other national 
emergency the President may take over, occupy, and 
use any part or all of any free zone, or its facilities or 
appurtenances, for such time as the exigencies of the 
case demand. The damage suffered by the grantee 
by reason of such taking, occupation, and use shall 
be determined by agreement between the grantee and 
the President. If no such agreement is made, the 
President may pay to the grantee an amount equal 
to seventy-five per centum of the amount estimated 
by him to be due as just compensation, and the 
grantee may bring suit in the Court of Claims for an 
amount which, if any, when added to the sum received 
from the President, would constitute just compensation 
for the property taken. 

Sec. 19. That in case of a violation of this Act, or 
any regulation of the Secretary under this Act, by 
the grantee, any officer, agent, or employee thereof 
responsible for or permitting any such violation shall 
be subject to a fine of not more than $1,000. Each 
day during which a violation continues shall constitute 
a separate offense. 



Sec. 20. (Same as sec. 26 in bill as introduced.) 



APPENDIX. 



TABLE OF CONTENTS. 

Page. 

Report of committee of New York Chamber of Commerce 35 

Resolution adopted by Philadelphia Chamber of Commerce 36 

Report of committee of Philadelphia Board of Trade 36 

Resolutions adopted by the Philadelphia Bourse 36 

Resolution adopted by the foreign trade bureau of the New Orleans Association of Commerce 37 

Resolution adopted by the Commission Council of New Orleans 37 

Resolutions adopted by board of directors of New Orleans Cotton Exchange 37 

Report of committee of Galveston Commercial Association 38 

Resport to United States Tariff Commission by committee of San Francisco Chamber of Commerce 38 

Resolutions adopted by board of directors of San Francisco Chamber of Commerce 48 

Extracts from a hearing held by United States Tariff Commission in New York 49 

Extracts from a hearing held by United States Tariff Commission in Philadelphia 57 

Interview between Hon. William Kent and Capt. V. Lassen 69 

Letter of George R. Meyercord " 73 

Letter of Charles D. B_pyles 74 

Address of H. R. Geddes, of Dover, England 74 

Acts of Congress granting privileges similar to free-zone practice -. 76 

Law for establishment of a free port at Copenhagen 77 

Charter of Copenhagen Free Port Joint Stock Co 79 

Rules for the administration of the free port of Copenhagen 83 

Law providing for a commission to select a site for a free port at Lisbon, Portugal 85 

Royal decrees providing for establishment of free ports at Cadiz, Barcelona, and Bilbao, Spain 86 

Bill providing for the establishment of free zones in French maritime ports, introduced in the French Chamber of Deputies July 10, 

1914, with explanatory letter 90 

92621—19 3 33 



Report of Committee of New York Chamber of Commerce. 

At the regular monthly meeting of the Chamber of 
Commerce of the State of New York, held January 3, 
1018. the following report, presented by its committee 
on foreign commerce and the revenue laws, was 
unanimously adopted : 

REPORT ON THE ESTABLISHMENT OF A FREE PORT AT 
NEW YORK. 

To the Chamber of Commerce: 

Your committee on foreign commerce and the rev- 
enue laws has had under consideration the proposition 
to establish at New York a free port or free zone. 
During December the United States Tariff Commission 
held hearings in the city, at which arguments were 
made for and against this proposition. These hearings 
were attended by several of your committee; the sub- 
ject also has been given careful study by all the 
members of your committee, both individually and in 
conference. 

The proposal to establish free ports in America is a 
part of the systematic development of our country 
which, it is obvious on every hand, is now for the first 
time to receive scientific thought and treatment. 

In the United States no free ports, or more accu- 
rately, free zones in ports, have ever been established. 
The oldest example abroad of such a port is at Ham- 
burg, Germany, where a large area has been set 
aside, into which foreign materials may be imported 
free of duty. In this area these materials may be 
stored, assembled, repacked, manipulated, or manu- 
factured without customhouse inspection, charge, or 
interference. When it suits the convenience or 
business plans of the owner of these materials, either 
he may reload them aboard ship and reexport them 
without payment of duties and without customhouse 
interference or he may send them out of the free zone, 
which is an inclosed and guarded area, and pass them 
through the customhouse to their destination in the 
domestic market. The owner of the goods when he 
takes them from the free zone into the nonfree zone 
must, of course, subject them to the usual inspection 
and customs charges as if directly imported. 

It is, therefore, obvious that tne establishment of a 
free port has no bearing whatsoever upon the political 
question of free trade or protection. The creation of 
a free zone in a port is designed to facilitate foreign 
trade, while at the same time protecting the customs 
revenues of the home country. 

Under the present system in the United States 
bonded warehouses have been established into which 
imported goods may enter in bond and from which 
they may be withdrawn for consumption or for 
reexportation to foreign markets. 

The bonded warehouse system is cumbersome and 
very unsatisfactory in a high-protection country 
seeking to do a large international trade. The 
advantages over this system to be derived by the 
establishment of a free zone in our port would be 
numerous. Among x-hem may be mentioned the 
following : 



(1) A free zone would facilitate the removal of 
imports from piers and from vessels, and thus relieve 
congestion so that ships would arrive and depart 
more quickly. For instance, the loss of time in 
weighing imports, in selecting one-tenth part for the 
appraisers' stores, as is required in some cases, and in 
meeting the restrictions which may be imposed on 
transfer of imports from vessels by lighter, would all 
be eliminated on goods landed afc the free zone. 
When a ship ties up in a free port it is possible to 
unload the cargo without any customs inspection. 

(2) A free zone would make it possible to avoid the 
complications of bonding and drawbacks in the case 
of reexported goods. Under the present system, for 
instance, where imported goods are merely repacked 
in this country the importer goes through the elaborate 
details of paying duties and then is subjected to 
further red tape, expense, and loss in the process of 
getting the duties paid refunded in the shape of draw- 
backs. 

(3) The free zone would give the owner at all 
times control of his merchandise, which is an important 
advantage over the bonded warehouse system. The 
owner has free access to his goods at all times. Ma- 
chinery may be assembled here. Manufacturing may 
be carried on, where domestic and foreign materials 
are combined, or otherwise. Show rooms may be 
equipped and goods sold to buyers therein. Goods 
may be imported in bulk, split up, reassorted, or 
mixed up with other goods, and prepared for shipment 
as demand may arise in this country or abroad. 

(4) The free zone has financial advantages in that 
it would release capital now tied up by our customs 

. regulations. Also, the more rapid movement of ships 
and cargo makes a more rapid turnover possible and 
a corresponding decrease in capital requirements. 

(5) The creation of a free zone involves the building 
of large, specialized terminals with all modern appli- 
ances for loading and unloading, transshipping and 
warehousing, and, in some ports abroad, for light 
manufacturing. Furthermore, dry docks, repairing 
and shipbuilding facilities are provided. This all cuts 
down materially terminal costs, which usually consti- 
tute about 60 per cent of the cost of ocean transporta- 
tion. 

(6) The establishment of free ports in this country 
will materially assist the United States to meet in 
foreign markets the competition for trade from such 
free ports in Europe, and will be a great aid to our 
foreign and shipping trades in the struggle for inter- 
national business at the close of the war. 

In view of the advantages accruing from free ports, 
and in view of the necessity that every efficient and 
economic facility be provided for increasing our inter- 
national trade and traffic, so that our immense mer- 
cantile marine and shipping industry now being built 
up may find employment in peace times, your com- 
mittee is moved to recommend the following: 

Resolved, That the Chamber of Commerce of the 
State of New York records its belief in the wisdom and 
necessity of establishing free zones at New York and 
at such other ports as may be deemed advisable, the 
location, area, and equipment of these zones to be 

35 



36 



FREE ZONES IN POETS OF THE UNITED STATES. 



determined after investigation by the proper authori- 
ties competent to pass on such matters; and be it 
further 

Resolved, That copies of the foregoing report, and 
resolutions be sent to the members of the United 
States Tariff Commission and to the Members of 
Congress. 

Henry A. Caesar, Chairman. 

William E. Peck, 

Charles A. Schieren, 

Lincoln Cromwell, 

John V. Jewell, 

W. Tyrie Stevens, 

I. Osgood Carleton, 
Committee on Foreign Commerce 

and the Revenue Laws. 

EUGENIUS H. OlTTERBRIDGE, 

President. 
Attest: 

Charles T. Gwynne, Secretary. 
New York, January 4, 1918. 



Resolution Adopted April 2, 1918, by the Philadelphia 
Chamber of Commerce. 

(Later presented to Chamber of Commerce of the United States at its annual con- 
vention at Chicago April 10, 11, and 12, 1918, and referred to board of directors of 
that chamber, with request that they give it early and serious consideration.) 

Whereas the United States is building a large mer- 
chant marine; and 

Whereas when the war is ended we believe that the 
American people will demand that this great tonnage 
shall be retained to build up and increase our foreign 
commerce; and 

Whereas in our opinion it is prudent in time of war 
to prepare for peace conditions after the war; and 

Whereas we believe that the establishment, opera- 
tion, and maintenance of free zones in the ports of the 
United States will be of far-reaching benefit to and for 
the foreign and domestic commerce of our country; 
Therefore be it 

Resolved, That the Chamber of Commerce of the 
United States petition the Congress of the United 
States to enact at this session, legislation for the estab- 
lishment, operation, and maintenance of free zones in 
the ports of the United States. 



Report of Committee of Philadelphia Board of Trade. 

Philadelphia, March 25, 1918. 
To the President and Executive Council of the Philadel- 
phia Board of Trade. 

Gentlemen: Your committee on foreign and coast- 
wise commerce, to which at the last meeting of the 
Philadelphia Board of Trade, held March 18, was re- 
ferred the question of the establishment of free zones 
in the ports of the United States, begs to report that 
its representatives were present at the hearings, which 
took place in Philadelphia, at the rooms of the board 
of trade, January 22 and 23, 1918, before Hon. William 
Kent and Edward P. Costigan, Esq., of the United 
States Tariff Commission, at which there appeared a 
very full representation of the commercial and busi- 
ness interests of the city. 



The opinions, as there expressed, were practically 
favorable to the establishment of such free zones as 
being in the best interests of the commerce of the coun- 
try, and it was earnestly contended that the port of 
Philadelphia was ideally equipped for the establish- 
ment of such a free zone, should the Government au- 
thorize this departure in the business methods of the 
customhouse service. 

The main arguments offered in favor of the Govern- 
ment authorizing such free zones may be summarized, 
as follows : 

I. The great saving of time and expense on the part 
of the Government in the handling of the imports upon 
their arrival in free zones and avoiding at that time 
the now necessary customs inspections. 

II. The avoidance of all complications attending 
the bonding and securing of drawbacks in case of the 
desire to reexport the arriving merchandise. 

III. The control by the owners of the goods stored 
in free zones, furnishing an additional facility for the 
profitable transaction of business, especially as to re- 
handling, packing, mixing, etc. 

IV. The advantage to manufacturers in the possi- 
bility of establishing their factories in the free zones, 
particularly where they are dependent upon dutiable 
raw materials, thus avoiding the troublesome condi- 
tions surrounding the question of drawbacks on their 
exported products. 

V. In the competition for the international com- 
merce of the world, the establishment of free zones 
will, it is believed, greatly aid the United States in 
securing its fair share of this trade. 

VI. The example of Hamburg seems to prove the 
advantages of a free zone, which doubtless will be 
dwelt upon in any report made by the Tariff Commis- 
sion and should prove a convincing argument in secur- 
ing congressional sanction for the necessary change 
in the customs laws authorizing the establishment of 
such free zones. 

Under the authority granted, the committee on for- 
eign and coastwise commerce of the Philadelphia 
Board of Trade submits the foregoing as briefly repre- 
senting the views of the board of trade in favor of the 
establishment of free zones, together with the follow- 
ing resolution : 

Resolved, That the Philadelphia Board of Trade, 
from the evidence submitted at the hearing in Phila- 
delphia before representatives of the United States' 
Tariff Commission, believes that the establishment of 
free zones in the ports of the United States will largely 
increase the facilities for the conduct of the foreign 
trade of the country. 



Resolutions Adopted by the Philadelphia Bourse. 

(An organization composed of over 2,500 business men, firms, and corporations 
having as one of its objects the improvement of the city, State and Nation, acting 
through its board of directors, at a meeting held April 20, 1918.) 

To the honorable the Senate and House of Representatives 

in Congress assembled: 

Whereas the consensus of opinion of that portion 
of the business public which is engaged in importing 
and reexporting the products of foreign countries, as 
shown by the testimony given at the several hearings 
on the subject, seems to favor the establishment of 
free zones in the ports of the United States; and 



FREE ZONES IN PORTS OF THE UNITED STATES. 



37 



Whereas, at the hearing held in Philadelphia Jan- 
nary 22 and 23, 1918, by members of the Tariff Com- 
mission the opinions expressed wore unanimously in 
favor of such free zone in the port of Philadelphia; 
and 

Whereas the special committee of this board having 
the subject under consideration has expressed itself 
in favor of the general idea as well as its application 
to the port of Philadelphia for many reasons, includ- 
ing the following: 

1. The facility of receiving, rehandling, repacking, 
and reshipping imported goods without the loss of 
time and the expense of the present obligatory cus- 
toms inspection. 

2. The elimination of the necessity for application 
for drawbacks on reexported foreign merchandise 
with all the attendant annoyances, and as well the 
necessity of bonding such goods as are to remain in 
storage pending removal. 

3. The opportunity for the establishment of fac- 
tories within the zone for the manufacture of goods 
destined for export and into which imported raw 
materials enter largely, avoiding all annoyance with 
respect to bonded factories and drawbacks. 

4. The upbuilding of a port or ports for the free 
exchange or transshipment of cargoes or part cargoes, 
thus increasing the tonnage of the port or ports having 
such zone, adding materially to the business of the 
port in supplying the additional ships, their repairs, 
etc.; adding generally to the shipping of the Nation 
and finding a paying outlet for the vast tonnage under 
our flag after the successful termination of the war. 

And whereas there has been introduced in Con- 
gress a bill (H. R. 10892) "to provide for the estab- 
lishment, operation and maintenance of free zones in 
the ports of the United States and for other purposes " : 
Therefore, 

Resolved, That the Philadelphia Bourse notes with 
satisfaction the effort being made toward the estab- 
lishment of free zones in the ports of the United 
States, believing such sA'stem would be a most valu- 
able adjunct in the promotion of the foreign trade of 
the country, and it hopes for the early consideration 
and enactment into law of the principles contained 
in bill H. R. 10892. 

Philadelphia Bourse, 
[seal.] By Emil P. Albrecht, 

President. 
True copy. Attest: 
W. R. Tucker, 

Acting Secretary. 



Resolution Adopted March 28, 1918, by the Committee 
of Management of the Foreign Trade Bureau of the 
New Orleans Association of Commerce. 

Whereas there has been introduced in Congress 
by the Hon. J. Y. Sanders, Congressman from Louis- 
iana, a bill which seeks to create within the United 
States free ports or free zones in which areas there 
shall be no custom regulations or interferences what- 
ever in the free handling in or out of merchandise 
manufactured or manufacturing; in which area 
merchandise may be received from foreign countries, 
reshipped, repacked, or combined with domestic goods 
and shipped out of this country; where partly manu- 
factured goods may be brought to a completed state; 



which condition of import and export would create 
many opportunities for the commerce of our country, 
giving employment to labor and to capital and put- 
ting our foreign commerce on an equal basis with 
foreign competitions; in which free flow of commerce 
and manner of handling imports and exports the 
commerce of our port and this whole southern and 
(■(Mitral section of the United States would be greatly 
facilitated: Therefore he it 

Resolved, That we, the foreign trade bureau of the 
New Orleans Association of Commerce, recognize tho 
great value to the condition of our foreign commerce 
which this bill would bring about, heartily indorse 
this bill as presented by J. Y. Sanders, and will 
cooperate with any assistance necessary to have same 
enacted, and that a copy of this resolution be for- 
warded to the United States Tariff Commission. 



Resolution Adopted by Commission Council of the City 
of Hew Orleans April 2, 1918. 

By Mr. Glen ny : 

Whereas there has been introduced in Congress by 
Hon. J. Y. Sanders, Congressman from Louisiana, a 
bill which seeks to create within the United States 
free ports or free zones in which areas there shall be 
no custom regulations or interferences whatever in the 
free handling in or out of merchandise manufactured 
or manufacturing; in which area merchandise may be 
received from foreign countries, reshipped, repacked, 
or combined with domestic goods and shipped out of 
this country; where partly manufactured goods may 
be brought to a complete state, which condition of 
import and export would create many opportunities 
for the commerce of our country, giving employment 
to labor and to capital and putting our foreign com- 
merce on an equal basis with foreign competitions, 
in which free flow of commerce and manner of handling 
imports and exports the commerce of our port and 
this whole southern and central section of the United 
States would be greatly facilitated; Therefore be it 

Resolved, That we, the commission council of the 
city of New Orleans, recognizing the great value to the 
condition of our foreign commerce which this bill 
would bring about, heartily indorse this bill by Mr. 
Sanders and will cooperate with any assistance neces- 
sary to have same enacted. 

Be it further resolved, That a copy of these resolu- 
tions be forwarded to the United States Tariff Com- 
mission. 

Adopted. 



Resolutions Adopted by the Board of Directors of the 
New Orleans Cotton Exchange March 18, 1918. 

Whereas we are firmly convinced that the establish- 
ment of a system of free ports in the United States 
will prove a great aid to our foreign and shipping 
trades for international business ; and 

Whereas such a system will contribute greatly 
toward enabling us to find employment in peace times 
for our immense mercantile marine and shipping 
industry now being built; 

Resolved, That the New Orleans Cotton Exchange 
strongly recommends the adoption of legislation by the 
United States Congress establishing free zones at New 



38 



FREE ZONES IN PORTS OF THE UNITED STATES. 



Orleans, New York, and such other ports as may be 
deemed advisable. The location of such zones to be 
determined upon investigation by proper authorities 
competent to pass on such matters. 

Resolved further, That copies of the foregoing pre- 
amble and resolutions be sent to the United States 
Tariff Commission and the Senators and Members of 
Congress from this State. 



Report of Committee of Galveston Commercial 
Association. 

Galveston, Tex., Mar. SO, 1918. 
To the officers and directors of the Galveston Commercial 

Association. 

Gentlemen: Your special committee, appointed for 
the purpose of examining into the matter of estab- 
lishing free port areas or zones in the different ports 
of the United States, beg leave to submit the following 
report: 

There is one question which naturally arises in the 
minds of the farsighted business men of America and 
that is, What preparation are we making looking to 
the promotion of better and freer international com- 
mercial relations after the conclusion of the present 
war? At this time there is no satisfactory answer to 
that question. 

In our opinion the industrial competition which 
will follow the ending of the present war is a matter 
that should now receive the most careful considera- 
tion at the hands of Congress and others responsible 
for advancing the best interests of this Nation and 
our people. It might be well said, "In the time of 
war, prepare for peace." 

The establishing of free port areas at selected 
American seaports is one of the most important steps, 
requiring immediate consideration. In supplying and 
meeting the great needs of devasted Europe, the 
United States will occupy a commanding position. 
It will require many years for Germany to overcome 
the bitter hatred that she so well merits at the hands 
of civilized nations, and friendly America, who entered 
the world conflict from only the loftiest motives, will 
no doubt b e looked to with favor in a commercial way 
for a very long time. 

Free port areas are designated zones with a channel 
frontage at deep-water ports, hi which shipbuilding, 
ship repairing, warehouses, and manufacturing estab- 
lishments are located. Materials of all kinds imported 
from foreign countries would be accepted at free ports 
without the payment of duties. These materials, as a 
whole or in part, could be manufactured into finished 
products and these products, after furnishing em- 
ployment to American labor, could be exported to 
South American or any othef countries where duties, 
if any, could be paid by the purchaser. In this free 
port area goods and materials may be stored, as- 
sembled, repacked, or used in manufacturing without 
previous payment of customhouse charge; also with- 
out customs interference. 

Free port areas are also great markets where buyers 
could go and make their selections and pay the duty 
at the time of delivery instead of making selections 
from samples or sending buyers to Europe. In these 
areas the goods are always accessible to the owner 
and subject to inspection. Rough rice could be im- 



ported from Japan, furnishing inbound cargoes at low 
freight rates for ships calling at our ports for cotton. 
This rice could be polished and packed and withdrawn 
gradually from the free port area, paying duty on 
quantity withdrawn instead of paying duty on entire 
cargo on arrival. 

The free port zones of other countries are largely 
ship-repairing plants and trading centers rather than 
manufacturing centers. In the United States they 
would tend toward the upbuilding of our merchant 
marine and aid in bringing to America raw materials 
and goods of foreign nations either for reexport or 
entrance with the minimum of delay and difficulties 
and none of the unsatisfactory red-tape features con- 
nected with bonded warehouses. These zones simplify 
the conduct of import business and they also admit 
of the rapid unloading of ships, thus expediting their 
arrival and departure. 

In view of the facts stated, we submit for adoption 
the following resolution: 

Whereas the port of Galveston being located on 
deep water, having thoroughly modern and up-to-date 
wharfage and terminal facilities, with terminal rail- 
o a ds contiguous to said wharfage facilities ; and 

Whereas the geographical location of the port of 
Galveston is such as to make it the logical concentra- 
tion and distribution center for South American 
countries, European countries, and the far eastern 
Pacific Ocean countries, via the Panama Canal: Now 
therefore be it 

Resolved by the board of directors and advisory board 
of the Galveston Commercial Association, after a thorough 
study and consideration, That it recommends to the 
United States Tariff Commission the, advisability and 
necessity for the establishment of free port areas or 
zones at the port of Galveston, and at such other 
ports of the United States as in its judgment may be 
deemed advisable; said locations, area, and equipment 
of said free port area or zones to be determined after 
investigation by the proper authorities vested to pass 
upon such matters; and be it 

Further resolved, That copies of these resolutions be 
forwarded to the members of the United States Tariff 
Commission, and to the Texas Senators and Congress- 
men. 



Report to the United States Tariff Commission by the 
Committee on Free Port Appointed by the San Fran- 
cisco Chamber of Commerce. 

| San Francisco Chamber of Commerce, committee on free port, 1004 Merchants' 
Exchange Building, San Francisco.] 

February 28. 1918. 
Hon. William Kent, 

United States Tariff Commission, 

Washington, D. C. 
Dear Sir: The committee appointed by the San 
Francisco Chamber of Commerce to take up the ques- 
tion of the advisability of recommending to Congress 
the establishment of free ports, or zones, has completed 
its labors and respectfuhy incloses a complete copy of 
its findings and recommendations, which it is trusted 
may be found of value. 

Thanking you for the opportunity thus given, 
Yours, respectfully, 

Geo, A. Newhall, Chairman, 



FREE ZONES IN PORTS OF THE UNITED STATES. 



39 



FOREWORD. 

The question of establishing; "free ports" in the 
United States as a new national policy has been raised 
in Congress, and to Hon. William Kent, a member of 
the United States Tariff Commission, has been assigned 
the duty of collecting and preparing data on the sub- 
ject for transmission to Congress. 

The consideration of the matter before the San 
Francisco Chamber of Commerce was inaugurated by 
Mr. Kent at a meeting held October 23, 1917, which 
was attended by representatives of the mercantile and 
shipping interests around San Francisco Bay, and this 
report is the result of the investigation that ensued. 

A brief explanation of the nature and purposes of 
what is meant by a "free port" may be of service in 
comprehending the following argument in favor of its 
institution. 

Free, ports, or free zones in portions of harbors, have 
long been known in Europe and Asia, but the subject 
is much misconceived in the United States because of 
the ambiguity of the word "free." 

It does not mean freedom from harbor or port 
charges, such as tolls or wharfage on cargoes, dockage 
on ships, pilotage, towage, etc. Nor does it involve 
any change in tariff policy. Briefly, it means freedom 
from customs control. 

A reasonably large part of a port is segregated for 
the conduct primarily of foreign commerce, and in 
order to guard against intrusion by unauthorized per- 
sons and for the better enforcement of laws and regu- 
lations it is inclosed by substantial barriers on both 
land and water sides. This constitutes the "free 
zone." and from it all customhouse activities, except 
precautions against smuggling, are excluded. 

Here the imported merchandise is landed, and when 
the imports pass through the land or water gates of the 
inclosure into the. country elsewhere, then at that time 
and at the gate, theoretically, the duties incident to 
the collection of the tariff dues begin and all the com- 
plicated rides and regulations of the customs service 
first go into operation. If the imports are not taken 
for domestic consumption, they may be reexported, 
whether in the original packages or otherwise, without 
payment of tariff dues or interference by customs offi- 
cials. The same is true of foreign raw materials 
landed and worked up into manufactures inside the 
free port and designed for reexport. 

While the imports are in the free zone they may be 
stored in nonbonded warehouses or handled ad 
libitum by the parties interested with absolute free- 
dom, and may be prepared for shipment either into the 
country or for transshipment or reexport to foreign 
countries and started on their way, without the onerous 
impediments now caused by customhouse supervision, 
red tape, and penalties. 

It is merely a new system of customs collection and 
supervision. The customhouse, so to speak, is 
removed from the ship and wharf, where it now holds 
sway, and is set up at the gates of the free zone. 

The proposed change does not in any way affect the 
nature or size of the tariff dues, simply the method and 
manner of their collection and the places where the 
customs activities shall be exercised. The aim is to 
put them outside the free zone entirely. 

Of course the inclosed area of water and land inside 
the free zone must be sufficiently large to accommo- 
date the foreign commerce of the port, and it should be 



provided with all the necessary wharves, nonbonded 
warehouses, railways, spur tracks, and devices required 
lor the rapid and economical handling of cargoes. 

Tins report was prepared on behalf of the San Fran- 
cisco Bay conference alluded to by Mr. J. ,1. Dwyer, 
former president of the Board of State Harbor Com- 
missioners in charge of the port of San Francisco. 

FREE PORTS AS A NATIONAL POLICY. 

We have reached the conclusion without a dissent- 
ing voice that a national policy of free, ports should be 
inaugurated by the Federal Government for the reason 
that such a policy would directly tend in a marked 
degree, well worth the cost of the necessary changes in 
the present system, to increase profitable foreign 
trade and build up a merchant marine, whether the 
latter is to remain privately owned and operated, or be 
more or loss governmentally owned or controlled or 
operated. 

In giving our reasons in detail, we shall try to avoid 
anything like an essay on the theory of the subject, 
Or an attempt at a summary of the practice and expe- 
rience of foreign free ports, which would be only a use- 
less repetition of matters better stated in other com- 
pilations and reports. Of such reports of American 
origin, we refer particularly to those emanating from 
the Merchants' Association of New York, which we 
have found most illuminating, and have studied, with 
hope, with profit. We may say, briefly, that the New 
York conclusions seem to us well-founded and their 
reasons clearly stated and very persuasive in favor of 
the idea. We have no hesitation in saying that we 
share their convictions most decidedly. 

Wo had attempted a treatment of the subject in the 
abstract, but on perusing the argument in favor of 
the installation of a free port on New York Harbor, 
which was submitted to the United States Tariff Com- 
mission by the industrial bureau of the Merchants' 
Association of New York, it became apparent that 
much of our matter could be eliminated as mere repe- 
tition of what is there contained in more cogent form, 
and therefore what we have to say will be largely 
supplementary to that argument or illustrations 
drawn from our local experience. ' 

THE PORTS OF NEW YORK AND SAN FRANCISCO ANALOGOUS IN FOREIGN 
OUTLOOK. 

The geographical situation of San Francisco Bay, 
with respect to the Pacific Ocean trade of the United 
States, is justly comparable with that of New York, 
with respect to the Atlantic trade, even if the New 
York trade partakes in larger measure of the char- 
acter of world trade. This analogy holds good both 
as regards back country in America and as regards 
foreign countries facing us. Russia, through Siberia, 
Japan, China, Java, Australia, New Zealand, and even 
British India now have trade relations of great volume 
and value with and through San Francisco. This is 
true also of the eastern shores of the Pacific, South 
America, Central America, Mexico, and Canada. 
Statistics to justify this statement are readily avail- 
able and need not be cited here. The names of these 
countries alone call to mind enormous populations, 
hungry for our manufactures, cotton, steel, metals, and 
food products and other raw materials, and themselves 
teeming with food products and raw materials which 



40 



FREE ZONES IN IJORTS OF THE UNITED STATES. 



we need and must have, not only for our domestic use 
but also indispensable if we propose to compete suc- 
cessfully with Europe in supplying the world trade. 
Expatiation on this idea would be easy, but its appli- 
cations are obvious. The reasons that are valid in 
New York are valid here. 

So, like New York, we approach this subject in no 
small or local spirit. We have tried to measure it on 
the national scale. Is the free-port policy a wise 
departure for the Nation? Will it pay? "Will the 
results justify the cost ? Are its manifest advantages 
offset by any demonstrable, disadvantages, that either 
outweigh the advantages or come so near balancing 
the scale that the change is not worth while ? Can the 
present customs system, the growth of a century of 
experience, be remodeled in its operative methods and 
adapted to the free-port idea without disadvantage to 
the customs revenues either in cost of collection or 
security against smuggling ? 

We have kept these fundamental questions in mind 
in reaching our conclusions. 

We assume that foreign trade is a good thing, even 
an indispensable thing, for our country, and we assume 
that a merchant marine owned and operated by our 
own people, under either public or private auspices, is 
highly advantageous, and, in fact, that recent expe- 
rience due to the world war has demonstrated that a 
merchant marine is almost vital to the preservation 
of our political and industrial system, let alone a 
profitable enterprise in itself. 

For the present purpose such assumptions will be 
made. We believe, in both of them most religiously. 
Arguments as to them belong elsewhere and are readily 
available. But it is proper to say that it is our pro- 
found faith in both assumptions that makes us vividly 
realize the tremendous importance of the free-port 
idea. San Francisco is a commercial community. 
For the 70 years of its existence it has thrived on 
foreign commerce. Its future is bound up in its 
expansion and extension in all directions and to all 
countries. Our horizon is the world. We want our 
markets eventually to be everywhere, but without any 
boasting we have the vision to see that the present 
beginnings in the Orient and on this side of the Pacific 
will in the immediate, future grow by leaps and bounds, 
provided we are not handicapped in the race by govern- 
mental regulations that unnecessarily impede foreign 
trade and which can be removed by wise changes and 
no corresponding loss. Our natural advantages of 
geographical situation, the possession of a harbor 
almost uneqxialed in size and conveniences, with deep 
water, negligible tides, no storm damage, a mild, even 
climate the year round, these give us the necessary 
basis for foreign trade in a measure rarely equaled. 



HELPS AND HINDRANCES. 



What remains is for us to see that the legitimate 
artificial helps are speeded up and that the artificial 
hindrances are reduced to a minimum. 

Briefly, the artificial helps directly under our con- 
trol come under the domain of transportation, ship, 
rail, and otherwise, switching and other conveniences; 
and under the head of general harbor facilities, includ- 
ing quicker and cheaper warehousing and freight han- 
dling in every department. These c an not be discussed 
here, but must be mentioned, because they must all 
be connected up with the free port idea most inti- 
mately and definitely before the latter can be even 



understood and especially before the latter can be seen 
to be an appreciable step in advance. It is because 
and principally because the combination of artificial 
helps alluded to, in themselves capable of indefinite 
improvement, will work better and nourish and grow 
better under free port arrangements than under the 
present system, that the free port idea is at all to be 
considered. 

The difficulty about the argument for the free port 
from the theoretical side is that it so obviously sound 
as to be axiomatic, and discussion or expatiation tends 
rather to obscurity than clarification. ' 

As a matter of course, freedom from customs con- 
trol, and the incidental delays, costs, vexations, and 
losses, must inevitably benefit foreign trade. To 
argue otherwise is to say that a man can work faster 
or better with a couple of fingers or a hand tied up or 
missing. 

It would be foolish to say that the freedom of the 
port in and of itself alone makes a port great in its 
volume of foreign trade. We have great ports that 
are not free ports. It would be ridiculous to contend 
that the trade of London or Hamburg, for example, 
has been due solelv or even mostly to the kind of 
"freedom" involved in the free port idea. Many fac- 
tors and causes, some natural, as above stated, some 
artificial, of the kind alluded to, others that belong 
under the head of financial organization, labor condi- 
tions, Government aid, etc., in varying degrees in dif- 
ferent great ports, go to make up the sum, but what is 
in point here is to note and make plain that the freedom 
of a port from unnecessary interference by Government 
officials and rules and restrictions, whether customs or 
otherwise, must necessarily and to an appreciable de- 
gree be a real factor to be reckoned with. It may not 
be so easy to see this in the case of London and Ham- 
burg, where the other factors are so overshadowingly 
important, but it is very easy to see it in the examples 
of Hongkong and Singapore on the Pacific, and it 
has been made quite apparent in the recent brief trial 
in Copenhagen in Europe. We must content our- 
selves to mere references on these aspects of the 
subject. 

If the freedom of a port is a measurable factor in its 
prosperity, it follows that conceivably it may in many 
cases be the deciding factor as between it and its for- 
eign rivals. 

LOOK ACROSS THE PACIFIC. 

A general survey of Pacific Ocean commerce will in 
our judgment warrant the conclusion that a national 
free port policy applied to San Francisco Bay would 
mean in a short time the establishment of an interna- 
tional market on San Francisco Bay comparable in 
importance with Hongkong and Singapore. 

When we consider how much of the trade of both 
these great world ports is directly and plainly trace- 
able, in the first place, to wise governmental helps of 
an affirmative character, and secondly, to the absence 
of customs control or interference — that is to say, to 
the fact that they are free ports, we arrive at some 
comprehension of the degree in which it is true to say 
that the greatness of both ports has been largely arti- 
ficially established by England. 

Both these ports are, on the one hand, practically 
"branch stores," as they have been aptly called, for 
the sale in the Orient of goods from all nations, and, 
on the other hand, they are the assembly places of the 
innumerable cargoes, large and small, that come not 



FREE ZONES IN PORTS OF THE UNITED STATES. 



41 



only from their respective immediate neighborhoods, 
but from all over the Orient, and whose ultimate desti- 
nation is Europe or the Americas. In this way are 
collected, and then sorted, graded, and packed, the 
spices, cocoa, teas, vegetable oils, tin, and other ores, 
rubber, copra, and other raw materials, in immense 
volumes, that might indeed have been gathered up 
elsewhere, but are gathered up and reexported by 
Singapore and Hongkong largely because of their su- 
perior port arrangements based on the free port policy. 
These artificial arrangements have been main, if not 
controlling, factors in making them the distribution 
centers and market places both for imports to and the 
exports from the Orient. 

THE PACIFIC — OCEAN OF OPPORTUNITY. 

San Francisco ought to fulfill similar functions as 
between the Orient and Spanish America, and we be- 
lieve the free-port system would help appreciably in 
giving a strong impetus to the creation and indefinite 
expansion of that branch of foreign commerce which 
embraces the reexport trade. 

The argument must be brought down pointedly to 
that particular department of foreign commerce which 
involves transshipment or reexport. 

IS THE TRANSSHIPMENT TRADE WORTH SEEKING ? 

We will fail to understand the question in its nature 
or magnitude unless we start with a fair appreciation 
not only of the utility of foreign trade as a whole, but 
also a sufficient estimate of the large department of 
foreign trade which consists simply of the processes of 
handling over and over again the same things, in their 
passage from the fields of their production to the fac- 
tories where they are turned into goods or to the shops 
where ihej are delivered to customers, and, conversely, 
the repeated handling of the finished products on their 
way out from the factory to their markets the world 
over. Of course the profits are in proportion to the 
volume handled. The profits of this merchandising 
commerce go to the ports best equipped by natural 
and artificial advantages and with highly developed 
financial and business organizations. It is a commer- 
cial truism that trade will, within limits, follow the 
lines of least resistance. And, of course, where cus- 
toms regulations are absent, to that extent indubitably 
will trade flow preferably through free channels. 

The transshipment business of the world runs 
annually into billions of dollars. Good authority 
makes the figure over four billions. Up to the world 
war much the greater part was done in free ports. It 
is well worth the effort to get our share. 

Comparatively, but a very small proportion of 
America's trade with foreign nations has come under 
this head, but its growing importance has been made 
more and more manifest by the developments and 
changes due to the present war. 

That business in the Occident has heretofore 
centered in the neighborhood of the British Channel 
and the North Sea, and in the Orient at Singapore 
and Hongkong. 

If American ports want to compete successfully 
with European and Asiatic ports in this rich sphere of 
trade, we will be handicapped in the race just in so 
far as that trade is artificially hindered by the manner 
and method of the enforcement of the customs laws. 
Nothing is here said or intended for or against either 



a high or low tariff or for or against a protective or 
rovenue system of tariff taxes. We mean to confine 
ourselves solely to the manner and method of enforcing 
the collection of the tariff taxes, whatever bo the par- 
ticular policy in force, as to the kind or amount of the 
customs dues. We are familiar with and know from 
experience the costs, delays, vexations, and losses due 
to customs red tape and supervision. They are, wo 
believe, a very serious impediment to the reexport 
trade and foreign commerce, generally. If removed, 
the gain will bo enormous. If they can be removed by 
the simple process of putting the customhouse and 
its red tape wholly outside the free zone or free port, 
without any loss to the Government in revenue, with- 
out any increase in the cost of collecting the taxes and 
without any greater risk of smuggling, surely nothing 
remains of the argument except the single question as 
to whether in the older ports the change can be effected 
without too great a cost for the physical constructions 
or rearrangements necessary to install the free-port 
system. In the newer ports, where there is much 
virgin territory to work on, of course this part of the 
problem is of easier solution. 

In the latter aspect it is proper to point out that on 
San Francisco Bay the present situation lends itself 
admirably to the proposed change. It would be idle 
to go too deeply into that question at this time. If 
the policy be a wise one nationally, the natural 
advantages above adverted to, an inspection of the 
San Francisco Harbor on both sides of the Bay of 
San Francisco, a consideration of the commercial 
propensities and aptitude of our people, the evidence 
furnished by immense recent outlays for harbor 
improvements and the superior facilities now available, 
all combined demonstrate the justness of the conclu- 
sion that San Francisco Bay is an ideal site for a free 
port. 

In the arguments and data appended to this report, 
contributed by subcommittees, and which are incor- 
porated herein in support of our conclusions, the argu- 
ment from economy frequently appears. It may be 
reinforced in another way. The multiplication- table, 
it must be remembered, will be industriously at work. 
It figures enormously in the balance of advantages. 
Even the smallest economy in handling freight due to 
the superior arrangements practicable only in a free 
port with well coordinated transportation systems and 
freight-handling devices, multiplied by the number of 
times the operation takes place in the course of a year, 
soon runs into fabulous figures. People are astonished 
to be informed that it often costs as much to transfer 
a box of apples from one part of a city to another as 
to ship it across the continent. And similar amaze- 
ment will follow the institution of a free port, where, 
under freedom from customs interference, cars, ships, 
warehouses, and all the other means and methods of 
collecting, transporting, sorting, cleaning, packing, 
grading, and other manipulation of goods and materials, 
are brought into closest juxtaposition, and conse- 
quently where all these intricate and complex things 
may be done with the minimum of friction, delay, 
cost, vexation, and loss. A saving in the smallest 
point of the entire operation multiplied by the endless 
repetitions of the same thing year in and year out — 
what will the figures amount to ? Our new habits of 
thrift may give some faint idea of the total. 

Opponents of the free-port policy will point out 
that our present enormous foreign trade has grown up 
in the absence of the free-port policy, and that it will 



42 



FREE ZONES IN POETS OF THE UNITED STATES. 



undoubtedly develop indefinitely under the present 
system of customs collection, with such modification 
as may be suggested by experience as we go along, 
and that such a radical departure as that involved in 
the establishment of free ports is for that reason 
unnecessary and, because of the cost and confusion 
of the proposed changes, unwise. 

It is plain that the argument for the new policy 
will fail unless we demonstrate that the gains in 
efficiency and economy will probably outweigh the 
costs and other disadvantages of the change. 

- GIVE FOREIGN COMMERCE WINGS, NOT SHACKLES. 

Anything like an exact calculation of such obscure 
and complex factors is extremely difficult, but our best 
judgment, based on the experience of foreign ports, 
a working acquaintance with our own present customs 
and harbor systems, and a study of the question in 
the abstract, has convinced us that under a free-port 
system foreign trade will be expanded and its profits 
enhanced in the following ways : 

First. It is self-evident that reexportation, even in 
original packages, will be facilitated, speeded up and 
cheapened, if the goods and materials do not have 
to pass through the customhouse at all. 

Second. Storage in nonbonded warehouses will be 
facilitated, accelerated and cheapened. The ideal 
arrangement is to have them right alongside the land- 
ing places. Right alongside the warehouses should be 
the railroad switch yards, connected up with the many 
transcontinental and State systems that may be 
brought to the wharf directly or by a connecting belt 
railway switching system. The bonded warehouse 
would not be eliminated, but would be provided out- 
side and not inside the free zone. Its present advan- 
tages could thus be retained. 

Third. Inside the free port repacking, blending, 
mixing, cleaning and other legitimate commercial 
manipulation of merchandise destined for reexport is 
facilitated. These things can go on in the warehouses 
of the free port or in open places provided. In 
bonded warehouses these processes are "cribbed, 
cabined, and confined" in a way that not only seri- 
ously impedes but often in instances totally prevents 
the business. 

Fourth. Foreign merchants can maintain sample or 
consignment stocks therein without duty unless finally 
admitted into the country. The customhouse only 
protects itself from smuggling. That would be a great 
advantage. It has been proposed, since the Panama 
Canal opened, to have a perpetual exposition of goods 
on the Isthmus, where foreign and American merchants 
could maintain sample and consignment stocks. That 
would be advantageous to both sides. And why not 
in free ports elsewhere? 

Fifth. Quickened and cheapened distribution of 
goods into the interior or to other nations on our other 
frontiers. This would tend to build up distribution 
centers. The geographical location and the topo- 
graphical features of San Francisco Bay make it ideal 
for a vast distributing center and international mar- 
ketplace. 

Sixth. For steamships, emphatically " time is 
money." If we could eliminate or materially lessen 
the delays due to the customhouse, so much the better 
for the ships already in the trade; so much greater the 
inducement for other ships to come. 



Seventh. The free port tends strongly to make ships 
sure of cargoes both going and coming, by making 
practicable the distribution of incoming cargoes to, 
and the assembly of outgoing cargoes from, tributary 
territory, thereby attracting ships which avouIc! other- 
wise go elsewhere. 

Eighth. The required facilities would be furnished 
for all freighting operations between ocean and rail 
carriers and warehouses and to and from all of them, 
without customs impediments, until the freight was 
about to enter customs territory. 

Ninth. It results in saving, due to such freedom, in 
time, labor, worries, and losses in transfer of freight. 
Handling, drayage, and other expenses Avould be 
reduced. There would still be customhouse brokers, 
but cargoes would not have to deal with them or 
through them while the goods were in the free port. 
There is no doubt that their business would be simpli- 
fied by an arrangement where the customhouse is at 
the gates of the free port. 

Tenth. From the pecuniary standpoint, the one 
from which we ultimately look at this problem, the 
returns must undoubtedly be correspondingly en- 
hanced both to the carriers, ship and rail, and to the 
merchants, importer and exporter. 

Eleventh. The greater the natural advantages of 
the port from its geographical and topographical fea- 
tures and from its market and trade connections, and 
the better its harbor improvements and facilities, the 
more surely and immediately and largely would the 
benefits flowing from the institution of the freedom- 
from-customs control system be reaped. Freedom 
alone will not make a port big or prosperous. It is 
simply one of the desirable factors. 

ALL INTERESTS BENEFITED BY FREE PORTS. 

The free port system certainly adds to the pleasure 
of foreign business, adds to its profits and adds to its 
volume. 

The benefits may be considered from different stand- 
points. 

First, from that of the owners or charterers of the 
ships. It is self-evident that the ship's owners and 
the charterers would be benefited enormously. The 
system would strongly tend to build up a self-sustain- 
ing national merchant marine. 

Second, from the standpoint of the merchants, im- 
porter or exporter, the advantages are equally plain. 

Third, from the standpoint of harbor administration. 
If the customhouse toll gates were at the entrance of 
the free port, harbor arrangements would inevitably 
be in far better shape. The customhouse man and his 
necessary interference on the wharves would be 
eliminated. In our experience in San Francisco we 
found that many times consignees are unfair in a 
practice of making the customhouse an excuse for 
keeping cargoes on the wharf longer than they should 
be kept; and freight congestion is alleged to be due 
to inadequate wharf arrangements, when, in fact, it is 
frequently a case of juggling in order to secure free 
storage on the piers. It means much to the port to 
have this congestion reduced to the lowest terms. It 
is a very serious and costly detriment to a port to have 
the wharves piled up with goods because real, and fre- 
quently pretended, customhouse requirements com' 
pel it, 



FREE ZONES IN PORTS OF THE UNITED STATES. 



43 



Fourth, from the standpoint of customhouse admin- 
istration. We are aware that this is one of the hard 
knots of the problem. From the customs standpoint 
the free port arrangements must, of course, be entirely 
consistent with the sure and cheap collection of the 
customs tariff; but the experience of the free ports of 
other nations, even with high tariffs of a protective 
nature, would indicate that customs experts can find 
a solution of that feature of the problem. We ap- 
preciate the fact that the burden is on the advocates 
of a free port policy to show that present customs 
arrangements operate on foreign trade as a handicap 
of really serious proportions, that they not only in- 
crease unduly the operative cost of the foreign trade 
we now have, but also in all likelihood prevent new 
trade coming or otherwise hinder its growth, or give 
rival ports, without these hindrances, just that much 
advantage in the contest. We have tried to keep the 
practical in mind and avoid anything that savors of 
the academic. In this view we sought the advice of 
experienced customhouse brokers, because in the end 
the decision arrived at by Congress will doubtless be 
based largely on what may be thought to be the teach- 
ings of customhouse experience. An article on the 
subject from this standpoint by Mr. F. F. G. Harper, 
who has had many years experience in San Francisco 
as a customs broker, is appended and will no doubt 
be found instructive. 

Fifth, from the standpoint of the manufacturer. 
We refer, firstly, to manufactures within the free port 
for export to foreign countries of products wholly or 
partly made from imported raw materials, which 
under the present system would be subject to duty 
in the first instance and upon which drawbacks are 
now allowed when exported. The drawback system 
is so little in vogue in San Francisco that our experi- 
ence is an msufficient guide as to its real merits. The 
consensus of opinion is that up to date it has not been 
of much use. It is generally denominated by those 
who have sought to use it a nuisance rather than a 
genuine- stimulus to such trade. We must leave the 
drawback question to the experience of larger manu- 
facturing centers. Of course, if such manufactures 
were centered within the inclosures of the free port, it 
would require just so much more land area — a consid- 
eration that, generally speaking, would probably 
confine that department of the free port within com- 
paratively small proportions. 

Probably the principal advantage that the freedom 
of the port would contribute to the American manu- 
facturing industry as a whole, not only in regions near 
the ports, but throughout the country, would result 
from the creation in such ports of international market 
places for the assembly of foreign raw materials needed 
by our manufacturers. This feature of the subject is 
ably set forth at length in the New York article 
alluded to, and we leave the matter there. 



ADDITIONAL REPORTS. 



We also append an article prepared by Mr. John 
Clausen, of the Crocker National Bank, on behalf of 
our subcommittee on foreign trade. 

His committee circulated questionnaires, of which 
a sample is attached, among those interested in the 
foreign trade. An admirable answer was received 
from Mr. J. H. Polhemus, of the Hamberger-Polhemus 
Co., a long-established firm of exporters and importers 
in San Francisco. We incorporate this in our report 



as written as an illustration of what our merchants 
have learned from actual experience touching on the 
free-port idea. 

We have accepted Mr. Kent's suggestion that until 
Congress has first declared in favor of a free-port 
policy by general legislation arguments in Eavqr of a 
particular locality as a suitable site for a free port 
will not be opportune. We recognize that they will 
be appropriate for later consideration, either by Con- 
gress, if it directly names the sites, or by the executive 
department or other bodies to which that duty may 
be delegated under general laws. However, as cer- 
tain preliminary reports on the suitability of San 
Francisco Harbor, on both sides of the Bay of San 
Francisco, have been submitted, we take the liberty of 
forwarding them for filing, to be presented later at 
the proper time. 

CONCLUSION. 

In conclusion, we desire to emphasize the desira- 
bility of as quick a decision as possible by Congress 
on this weighty question. Space will permit of only 
the barest reference to the profound changes in the 
currents of the world's commerce that will surely re- 
sult from the world war and the full use ot the Panama 
Canal. The enormous merchant marine in process of 
creation must continue to be used when peace returns. 
Preparedness for peace can not be neglected except 
for war measures, but should go on where consonant 
with them. And it is difficult to see in what better 
direction preparedness for peace could move than in 
perfecting our harbor facilities for handling foreign 
commerce. The free-port arrangement is simply a 
gigantic harbor facility and, we believe, one that can 
be made most fruitful in its application to our country. 
It will take much time and labor and money to carry 
it out, and the period of indispensable preparation 
should not be postponed longer than is necessary. 

ADDENDA. 

REPORT OF SUBCOMMITTEE ON' CUSTOMS MATTERS. 

We have given considerable time to the effort to obtain concrete 
examples of delays and expense that the importers and vessel 
owners have been put to by reason of having to comply with cus- 
toms rules and regulations, confining ourselves to those that would 
be eliminated by the establishment of a free port. 

Very rightly it has been said that customs is the first and last 
word on this subject, and our committee has endeavored to forecast 
the movements of the foreign commerce of this port with respect 
to sources and classes of merchandise in order to understand where 
this increased commerce would encounter delays and expense due 
to customs supervision. We have also had to take into considera- 
tion that the present tariff is one mainly for revenue only and that 
another administration might revert to larger and more numerous 
protection features, and hence many articles, such as coal, hides, 
coffee, etc., in the line of bulk goods, and numerous manufactured 
or packed goods now on the free list might again become dutiable 
and require weighing, gauging, measuring, appraising, etc., as well 
as examination by the pure-food inspector, Bureau of Animal 
Industry, etc. Therefore, although we are able to report on some 
of the hindrances that have existed in the last few years, undoubt- 
edly there are many more difficulties which existed under other 
tariffs and would recur with a change of tariff laws. 

In enumerating some of the advantages to shipping by eliminating 
customs control, we summarize as follows: 

SAVING OF TIME AND EXPENSE TO VESSELS. 

(a) Delays due to customs boarding officers would be obviated. 

(b) Prompt docking and uninterrupted discharge of cargo. 

(c) Omitting necessity of giving heavy bonds to customs, obli- 
gating steamship agents to pay any loss of duty by fire, theft, 
casualty, etc., and the consequent delay while these matters are 
adjusted with the customs. 



44 



FREE ZONES IN PORTS OF THE UNITED STATES. 



(d) Not being required to make application to customs, obtain 
permit and pay for inspectors' services when it was desirable or 
necessary to work early or late hours or on Sundays and holidays. 

(e) Bonded and/or foreign cargo laden or unladen at will. 

(/) Vessel's discharge not stopped because of some error or delay 
in customs papers, which, at times, besides the cost by reason of 
delay, has entailed fines to vessels ranging from §100 to §5,000. 

(g) Not being required to keep drawback goods separate from 
other cargo and give to the customs officials six official hours' 
notice before lading same. 

(h) No further holding of teams on the dock until customs in- 
spector is able to check all bonded goods teams may have before 
loading on vessel, or unladen bonded goods teams may have for ex- 
port vessel, bonded warehouse, or appraiser's store. This checking 
would be done outside of free port. Once goods were placed on 
the dock, either from or for the vessel, no customs delay could 
occur, thus securing more prompt clearing of docks. 

Considering the foregoing few items noted, it is easy to perceive 
that there would be a great saving in stevedoring and other charges 
because of frictionless handling, it not being necessary to stop and 
learn whether the customs had passed this or checked that draw- 
back or bonded package if outgoing, or any and all packages if 
incoming, which, if it had not been inspected, would have to be 
passed by or moved aside until the customs official was done with 
it. Also, if I understand correctly the methods in force at Ham- 
burg, a violation of the Chinese-exclusion act and violations because 
of the desertion of alien seamen in this port, would be practically 
impossible as to those vessels whose cargo was all foreign and could 
be discharged at the free port and take on other cargo which had 
been assembled there for them, because then these vessels would 
not touch at other shores of San Francisco Bay, and the watchman 
of the vessel and harbor police would see that these people were 
kept on the vessel and the customs would be the guards at the other 
gate of the free harbor to stop them, provided they had eluded the 
first two systems of guarding. At the outer gate those with the 
right to enter the United States would be examined and passed, 
or they could be taken direct from the vessel on the tug to immi- 
gration station. 

All shipping men are very familiar, to their sorrow, with the very 
heavy fines paid for violations of these laws. We will note a half 
dozen items of fines charged covering the recent record of a little 
over one year of fines assessed to vessels in this port out of about 
40 different causes: 

Vessel fined for failure to produce duplicate bill of health, 

maximum fine $5, 000 

Area for steerage passengers not posted, fine 340 

And additional fine against the master of 100 

Failure to include certain items on the outward manifest of 

vessel, fine 500 

Discharge of foreign merchandise without authority in 
absence of inspector, fine treble the value of merchandise 
and forfeiture of vessel. 

In this case the master had gone ashore, and the barge 
man and the mate, who were unfamiliar with customs 
regulations, agreed that the barge could receive cargo 
in the stream, remaining alongside vessel until next 
morning. But later in the day as it appeared a 
storm was coming up, the barge man moved the barge 
to the dock. In view of these circiimstances, the 
fines were mitigated to a charge against the vessel of. . 700 

and against the barge owner of 200 

These were paid, with the attorneys' costs and 
there was also the loss of time in preparing and pre- 
senting defense, etc. 
Failure to make entry and enter merchandise at the custom- 
house 1,800 

Failure to enter within 24 hours 100 

Bonds are now required to be given for residue 
cargo which is to be discharged at following foreign 
ports and in order to cancel said bonds a lading cer- 
tificate or other evidence is required from abroad. 
This is a heavy obligation and it is sometimes diffi- 
cult for steamship owners to obtain the necessary 
certificates to cancel said bonds. 

There are many more cases of minor infractions of our customs 
rules, some perhaps because the Government under whose flag the 
ves3el sails does not enforce certain rules that we do, such, to give 
a few examples, as those in our so-called seamen's bill, those laws 
requiring the marking of part of the equipment of a vessel, and the 
maintenance of two compartments exclusively for hospital. Fre- 
quently, fines are assessed for breaking the customs seals, and for 
error in, or for not filing, complete store list of vessel. These fines 
are sometimes mitigated and sometimes remitted. But in such 



cases the offense has been trivial, or there were extenuating circum- 
stances. Nevertheless, discharge of vessel has been stopped, master 
or owner has had to attend at the customhouse and expense has been 
incurred in defending the charge. 

The foregoing few items clearly indicate that a free zone, elimin- 
ating such annoyances and losses undoubtedly is beneficial to vessels 
and particularly attractive to new liners or tramps, they knowing 
that costly fines and delays encountered with customs would not be 
possible at the San Francisco free harbor. For to steamships, 
most emphatically, time is money, and the knowledge that all 
customs requirements were done away with, would be the greatest 
inducement possible to offer for other ships to come to this port. 

A seaport originates and grows principally because of the export 
and import trade of its own country. But the facilities developed 
for this trade render such a port also the natural center where trade 
between neighboring foreign countries will focus. The small ports 
of Mexico, of Central America, even the Atlantic ports of South 
America, can not have direct sailings to and from all oriental ports. 
It will be natural for many of the goods from these ports to be trans- 
shipped here, especially as San Francisco is but 400 or 500 miles 
off the great circle steamer track between the Panama Canal and 
the ports of China, Japan, and Siberia. But as long as we maintain 
a tariff, means must be provided to diminish or eliminate entirely 
the avoidable obstacles which it presents to the class of trade just 
described. Three different plans have been devised. Two of 
them — the drawback system, and the system of bonded warehouses — 
are in use at American ports. If they were adequate, this report 
would not have been written. 

We should provide a better means of procedure for export trade, 
leaving the bonded warehouse to supply a necessary method of 
handling foreign goods for domestic consumption. 

THE BONDING SYSTEM. 

Under the bonded warehouse system, dutiable goods may, before 
the duty is paid, be taken from wharf to warehouse, whence at any 
time within three years they may be exported. At the end of 
three years the duty must be paid; likewise, if it is at any time 
desired to use the goods in the United States, and to insure that 
the goods be not used without payment of duty the hauling to and 
from dock and the storage must be done by business concerns who 
have given heavy bonds to the Government. In addition the 
owner of the goods must also be bonded in the amount of double the 
duty that would have to be paid should the goods be smuggled, lost, 
stolen, or destroyed. 

The movements of the goods have all to be under the supervision 
of customs inspectors, and the bonded warehouse is in charge of a 
customs storekeeper, by whom it is closed with a special Govern- 
ment lock during the noon hour and outside of business hours, so 
that not even the owner of the warehouse may enter during his 
absence. No work within the warehouse is possible outside of these 
hours without special permission and heavy expense for customs 
overtime. Goods must be piled so that they can be checked at any 
time by special Treasury Department agents. A multitude of other 
rules must be observed far too numerous to mention, so numer- 
ous in fact that they occupy three chapters of the present customs 
regulations. 

It is obvious that the expense of the bonds and the required 
supervision in transit, upon receipt, while in warehouse, upon 
delivery, and again in transit not only directly increases the expense 
of handling and storage, but also indirectly through the slower 
movement entailed. 

There are other disadvantages altogether too numerous to be 
detailed here. We will briefly hint at one or two. Cases can be 
opened only when damage to the goods is threatened, and special 
permission first must be obtained and the work done in presence of 
customs officers. Goods can not be transferred to other cases, either 
in whole or in part. Duty if paid must be based on original value, 
and must be paid on full contents of the package, even when there 
has been deterioration during storage. We will merely hint at the 
expense involved in general orders to store goods as unclaimed and 
at the further stringent rules applicable to warehouses bonded for 
special classes, such as spirits and tea. Enough has been said to 
s.iow that the device of bonded warehouses falls far short of meet- 
ing the requirements of a large foreign trade under competitive 
conditions. 

THE DRAWBACK. 

When the dutiable article is a raw material used in manufacture, 
either alone or with other raw materials native or foreign, the bond- 
ing system, of course, can not be used, and the customs provides 
that upon the export of such manufacture a rebate of the duty is 
granted on such part of the actual foreign material as is contained 
in the exported manufacture. To illustrate, imported chicle is 



FREE ZONES IN PORTS OF THE UNITED STATES. 



45 



used in the manufacture of chewing gum; imported feathers in 
making pillows and mattresses: foreign tin plate was formerly used 
in large quantities in making cans for our salmon and fruit. When 
the gum is exported the duty of 15 cents per pound on the chicle 
is subject to drawback (after deducting 1 per cent), and similarly, 
as to the feathers and the tin plate actually used in the cans. 

Here again, however, is a complicated and difficult system. The 
imported goods must be kept separate in the factory, its records 
must be kept as prescribed, and both goods and records must be 
open to inspection at any time. If the factory- is incorporated, its 
articles of incorporation must be filed at the customhouse; six 
official hours' notice of lading upon export vessel must be given, so 
that the inspector may be present and check the goods; oaths to all 
transactions must be'filed by importer, foreman, superintendent, 
and exporter; trade secrets as to manufacture must be disclosed. 
Finally evidence of foreign landing, or a bond to obtain such 
evidence, must be furnished. If all this and still other details 
be properly attended to, the drawback is payable 30 days after 
shipment. 

So complicated and unsatisfactory is this system that it can be 
used with profit only in a very large export business. Quite a few 
of our local merchants after experience abandoned all thought of 
applying for the drawback. 

IMPORTATIONS FOR CONSUMPTION IN THE UNITED STATES. 

The matter of valuation is one of the most difficult features, and 
one about which all importers have at one time or another some 
trouble with the customs. The value must be the wholesale market 
value in the principal markets of the country or place of shipment 
at the time of shipment. Frequently goods are bought under con- 
tract, or for some reason the shipper sells at a lower price. The 
chairman of this subcommittee was recently told the following 
instance by an importer: Under a previous tariff hides were duti- 
able. A Mexican rancher had shipped some hides to this importer. 
In that country hides are a sort of by-product, of practically no 
value, so a nominal value was placed on the invoice. This was 
raised by the customs, and the importer was required to pay a 
heavy fine, the reason for which the shipper is naturally quite 
unable to understand. Using the Spanish for "'never again," he is 
shipping no more hides to this port. 

A large shipment of refrigerated egg meat in tins arrived on one 
of our oriental liners some time ago. The goods could not be landed 
until arrangements had been completed to haul at once to a bonded 
refrigerated warehouse; but there was no wholesale market at the 
place of shipment, and the question of A r alue required telegrams, 
cables, and much discussion with the customs and caused heavy 
expense because of delay to vessel, of overtime charges at vessel and 
at warehouse charged by draymen, stevedores, ship's clerks, cus- 
toms inspectors, weighers, and customs storekeeper. In a similar 
New York case the importer to keep the vessel moving took a 
chance on his invoice value and had to pay some $30,000 in fines. 

In addition to the rules designed to insure collection of the duty 
the customs is charged also with the enforcement of certain other 
complicated laws, such as the Chinese-exclusion act, the pure-food 
law, the laws under the Bureau of Animal Industry, the copyright 
law, etc. 

When damaged goods arrive they must be held on the wharf until 
the customs adjust with the importer. Frequently marks are 
obliterated. Sometimes the condition is such that it is impossible 
to get a count of the damaged portion. Consequently, there is apt 
to be a dispute involving the importer, vessel, and customs. The 
importer is not permitted to recondition the goods, because the 
identity would be lost or it would be impossible to keep such a 
check that proper duties would be paid. In many cases it is cheaper 
to accept the only method provided by customs laws and abandon 
the goods, provided that the portion damaged is more than 10 per 
cent of the shipment; but the damage must be discovered and the 
goods abandoned within 10 days after making entry. 

THE FREE PORT AS AN INDISPENSABLE AID TO REEXPORT TRADE. 

Enough has been said to show how utterly impossible it is to 
think of our controlling any large amount of the transshipping trade 
between foreign ports until some means is adopted to avoid entirely 
the customs barrier as regards such trade. The only method that 
has been suggested is the free port. 

We shall endeavor to illustrate by concrete examples the various 
advantages which have been set forth, and we think it can be 
shown that the establishment of free ports in this country would 
benefit not only the seaports at which they might be located but 

ould also be of immense advantage to the export trade, to manu- 
facturers, to banking interests, and to the country generally. 

The interrelations of the various factors of trade are such that 
each reacts on all the others. Any facility which increases trade 
thereby brings nearer the range of possibility larger facilities which 



would involve too much capital or too much space for the smaller 
trade. Increased quantities mean lower prices and cheaper freight 
and these again open new markets and again increase quantities. 
In this way the various advantages which we can anticipate if 
free ports be legalized would lie cumulative, and the ultimate de- 
velopment might very well surprise the most optimistic. This 
aspect of the question should be borne in mind in what follows. 

GRADING, REPACKING, AND SORTING. 

If after goods were landed in the free port, sorting and grading 
by the importer showed that some portion would not be allowed 
into this country, such goods would be regraded and packed for 
any foreign markets available. If it were desired to ship two or 
three articles out of one case to Salvador and two or three others to 
Guatemala, and so on, it could be done. This would increase im- 
ports greatly, since, first, the cost abroad would be less (buying in 
bulk and unsorted. etc.), and, second, the larger quantities pur- 
chased would aid in lowering the cost price. 

There are undoubtedly many articles that could be imported 
into a free port and regraded, repacked, or reconditioned, or small 
quantities of which could be taken out of one case and used to fill 
into cases with other goods suitable for certain foreign markets. 
As one example, beans. In 1910, when I returned from a trip to 
the Orient, I mentioned to one of the large bean dealers of this 
city that an immense amount of beans was to be had in Japan, 
Manchuria, and Siberia. He replied that they would buy ship- 
loads of this commodity if they were able to buy graded goods; 
that the main trouble was that the oriental shipper did not know 
how to grade, or would not do it. and when the gocds arrived here 
it was impossible for the importer to sell them. I expressed sur- 
prise because we grew beans to such a large extent here, but he 
said that the demand was so great that they could take any amount 
of beans and sell from this market if they only had a way of select- 
ing, grading, and packing such goods in the Orient, so that when 
they arrived here they could be immediately sold and dispatched. 
Manifestly, a free port here would put the importer in the position 
as though his beans were in the foreign country just outside of his 
door. In other words, he would step across to the free ?,one, do 
the packing, regrading, etc.. himself, pay his duty on the portion 
which he desired consumed in the United States and export the 
other without molestation from officials. 

Other familiar examples are pepper from Singapore, rice from 
China, coffee from Central America, matches from Japan, and gums 
from Java. The resorting, regrading, repacking, etc., of these goods 
into such shape as is necessary for customers at other foreign points, 
our merchants can not handle because of customs hindrances, 
whereas a free port would permit all of this. 

Very recently the customs regulations have been changed as to 
the bonds given by importers so that one bond given by an im- 
porter obligates him to fulfill all of the terms of the laws under the 
customs and other before-mentioned acts, and it frequently occurs 
that shippers sometimes without knowing better, and at other 
times for the purpose of "getting by," send articles to importers 
which are in violation of the aforesaid laws and the importer knows 
nothing about it until after his entry has been made and he has 
become the victim and therefore must pay the penalties. Had 
the goods been landed at a free port, he would have taken his 
samples, probably place some of the goods in warehouses of the 
free port, and there made his entry for those goods which were in 
the proper condition for making entry. 

A free port would obviate much of the disturbance incident to 
a change of tariff. To illustrate: Coffee, tea, and other commodi- 
ties, which are free of duty are collected at this port, often in small 
lots, and when foreign orders are received, they are filled from 
these shipments. When upon our declaration of war, it became 
necessary to devise additional taxes, it was proposed to levy a duty 
upon these commodities. What a furore this created with the 
trade. Contracts for either foreign or local trade, made at prices 
based on no duty, could not have been filled without loss, because 
it would have been impossible to find transportation for a sufficient 
quantity before the new law would have become effective. If we 
had had a free port the foreign trade would have continued with- 
out interruption, while, on all goods finally entering the United 
States for consumption, the Government would have received its 
duty in due time. Furthermore, owing to the increase of business 
which this existence of a free port here would bring about, as pre- 
viously explained, the stocks on hand, being graded and awaiting 
foreign orders, would have been so much larger than were actually 
on hand, that existing local contracts could have been completed 
before the duty would have become effective. 

Recently an order came here from Russia for 100,000 bags of 
coffee. Had coffee not been free of duty and no free port here, 
this market could not have had that trade because the answer to 
the prospective buyer must have been: 

"It is too bad, but we have paid duty on this coffee and can not 
now quote you a good price." 



46 



FREE ZONES IN PORTS OP THE UNITED STATES. 



BENEFITS TO THE INTERIOR — TO THE WHOLE UNITED STATES. 

Although it might seem that the freedom of the port would con- 
tribute mainly to the encouragement of importations from foreign 
ports, yet it is manifest that such encouragement to come to this 
port would thereby be given to so many steamship lines, and to 
tramps and sailing vessels, that our whole State and other States 
of the United States that produced anything suitable for a foreign 
market would also be very greatly benefited, because there would 
always be vessels here ready to move their commodities. The in- 
terior merchant, manufacturer, and farmer would not find to his 
sorrow that his shipment was not on the ocean, but held with some 
thousands of cars of freight in this port that are destined for the 
Orient, Australia, etc., for which we have no vessels and no ware- 
houses, as is the condition to-day. And such loss would not be 
avoided in many cases, even in times of peace. 

As to Hamburg, I recall some 10 years or so ago, long before the 
war, a forwarder of Hamburg came to the United States and made 
contracts with large houses all over the Union, at both seaports and 
interior cities, to furnish them with their goods from Germany and 
Austria within a certain period. There was to be no uncertainty 
about receiving Christmas, Easter, or other seasonal goods, in time. 
He secured a large business. Necessarily, that meant that he 
visited the factories all over Germany and Austria, and instructed 
these people when and how to forward the goods by rail or river or 
canal up to the free port; here he sorted the assembled goods and 
marked them, and when the steamer arrived in the free port of 
Hamburg, the vessel got quick dispatch and the shipper low freight 
rates. There was no such disorganization as we have in recent 
years witnessed at East and West ports in the United States, loaded 
cars shunted here and there awaiting steamers, perishable goods 
spoiled, sales lost, because goods did not reach destination on time, 
and the interior farmer, merchant, or banker disgusted with efforts 
to do foreign business. 

In the free port of Copenhagen the importer can secure up to 75 
per cent of the value of his stored goods. Though it is a little out 
of the province of this subcommittee, we may be pardoned for call- 
ing attention to the opportunities which the banks might anticipate 
through loans on goods temporarily in port. The large item of 
handling exchange on all the greatly increased shipments is obvious. 

It is recognized that we are a producing country now, with a 
surplus to dispose of, and foreign markets are absolutely necessary. 

Our people only faintly aj>prehend the degree to which our 
foreign commerce is dominated by customs control. Every move 
made by vessel or cargo, master, or importer respecting foreign 
goods must first have sanction of customs. 

We hear the cry of "crowded docks." "If we could only make 
consignees take the cargo away." You say, "Consignees make the 
excuse, 'Customs have not issued permits'; we want more docks." 
What good would more docks do other than to make more room on 
docks for importers to use as warehouses unless you get customs 
dispatch? Does it not seem clear that a free port solves the problem 
as to foreign cargo and further, thereby, releasing other docks for 
domestic cargoes? 

THE OPPORTUNE TIME. 

America is now about to get its ships. Millions will be spent on 
the shores of this harbor for shipbuilding plants. Other millions 
will be devoted to harbor facilities to take care of the trade the 
ships will bring. We are told that the Government is to build fleets 
of river boats. The railroad terminals will be enlarged with 
reference to the harbor plans. A period of tremendous trade 
development is certainly imminent. Is all this to go on without 
any provision for the elimination of the intolerable friction insepa- 
rable from present arrangements? It is unthinkable. No compre- 
hensive plan for harbor development can be undertaken unless 
E revision is included for the establishment of a free port on such a 
asis that its facilities for years to come can keep abreast of the 
harbor's increasing trade. 

REPORT OP SUBCOMMITTEE ON FOREIGN TRADE. 

So numerous are the angle's of approaching the subject of a free 
port or free zone policy that a great deal of time and space could be 
devoted to its discussion. 

The rapid and substantial growth of free ports operated by other 
nations, whose business consists mainly in transshipment and 
exportation, however, furnish convincing data in favor of such a 
national move. 

The universal testimony appears to be that a free port has aided 
immensely in quickly building up both the foreign and domestic 
trade of every harbor where it has been properly established. 

"When we realize that Hamburg in 1913 had forged ahead until 
its foreign trade surpassed London by $100,000,000 and far exceeded 
Liverpool in imports, notwithstanding the fact that England is a 
free-trading country; that Hamburg's total foreign commerce was 



only $6,000,000 under that of New York, and that Hongkong sur- 
passed New York in clearing foreign-trade tonnage several years 
before the war, Singapore advancing as a collecting and distribut- 
ing center, and Copenhagen winning the trade of the Baltic, it 
becomes apparent that the free port is not a mere theory, but a 
practical producer of prosperity. 

Traveling and visiting many harbors, making observations and 
holding discussions with captains and shippers large and small, will 
demonstrate to anyone the important place that harbor facilities 
occupy in the commercial development of a city. 

Industrial and commercial development are dependent upon 
transportation. The efficiency of transportation, rail or water, is 
measured by the cost and speed of handling goods. 

Inadequate harbor facilities poorly correlated with railroad 
transportation are prime contributors to the high cost of living, as 
slow and expensive circulation of supplies inevitably add to their 
cost. It is obvious that the more hands through which goods pass 
from producer to consumer the more the public must pay. 

The war has made our people appreciate more than ever before 
that we can not claim or hold commercial supremacy if we are 
inefficient on the sea. 

At the opening of the Civil War American ships were carrying 70 
per cent of our exports and 65 per cent of our imports. 

At the opening of the world war in August, 1914, Great Britain, 
Germany, France, Italy, Japan, Austria-Hungary, Russia, and 
Belgium controlled 72 per cent of the world's ocean carrying 
capacity, and although our foreign trade, exports and imports 
combined, amounted to $4,500,000,000, or more than one-tenth 
the world's business, our merchant marine was capable of trans- 
porting only 9 per cent of it. 

At the end of the war we will have materially gained in tonnage, 
and Old Glory will be floating from the taffrail of a powerful mer- 
chant fleet. 

It is then that the need of free zones in the United States will 
become immediately apparent and immeasurably valuable. 

Your subcommittee on foreign trade sent out a questionnaire — 
a copy of which is hereto attached — to leading firms engaged in or 
interested in shipping activities, and obtained much helpful 
information regarding advantages which a free port would lend to 
develop foreign trade through the port of San Francisco. This was 
supplemented by individual research and investigation, personal 
interviews, and discussions. 

As a result of this work we are able to present a resume containing 
a variety of arguments showing the benefits of a developed and 
properly organized free port. 

(1) Ports are the gateways through which commerce must pass. 
Every form of waste, whether of time or money, that can be elimi- 
nated means to that section and to the country added facilities. 

(2) The establishment of free ports will tend to encourage new 
business and make land area more valuable as a terminal and 
cheaper as an entrepot. Traffic follows the line of least resistance, 
with saving of time, labor, and money. 

(3) By handling traffic more economically and expeditiously a 
free port or free zone will encourage and give impetus to surplus 
production, and benefit shippers, consignees, and consumers. 

(4) Free ports will be the means of saving interest on large sums 
of money by precluding the necessity of tying up funds for customs 
duties whilst goods are held in warehouses. 

(5) Free ports will increase the speed and decrease the cost of 
receiving, transferring, and reshipping of merchandise. 

(6) Free ports accord facilities for unloading goods which may be 
stored, packed, mixed, assembled, manipulated, and even manu- 
factured within the free zone with the greatest possible freedom. 
Manufacturers are accorded the privilege of exhibiting and demon- 
strating their goods, grading and altering same for domestic or export 
use. Buyers can examine, test, and compare the commodities of 
the world before making purchases. 

(7) Well-developed free ports or free zones in the United States 
stimulate the growth of exporting houses and enable them to hold 
goods for set periods without the payment of duties, often equal to 
the cost of the commodity itself. Besides supplying a more con- 
venient outlet for American goods, free ports will aid the American 
manufacturers in need of foreign supplies by bringing raw material 
to our snores cheaply for subsequent import or export, as the needs 
of the trade demand. 

(8) The number, speed, and efficiency of cargo boats will be 
greatly increased and in this direction a free port becomes a vital 
factor in enabling us to meet the foreign trade demands that will be 
placed upon us after the war. 

The harbor of San Francisco, when it first met the enraptured 
gaze of Portola, November 1, 1769, possessed more advantages than 
others less richly endowed by nature. Since then its golden portals 
have been open the year round and never required dredging, 
maintaining a permanent mishitting depth of 48 feet. San Fran- 
cisco Bay has always been able to admit the largest of the world's 
vessels, and all of them combined could find anchorage here and 



FREE ZONES IN PORTS OF THE UNITED STATES. 



47 



be sheltered in summer and winter from heat and cold, from heavy 
seas and squalls and storms. 

San Francisco is not only the gateway of the Far West hut it is 
the gateway to the Far East. More than half a century ago Bret 
Harte called San Francisco "the warden of two continents." 

Gazing out through the Golden Gate across the broad expanse of 
the Pacific we look through the open door of China. What an in- 
exhaustible market China would be for our products, if we went 
after it. 

Japan, rapidly winning a place in the sun and becoming western 
in constitution, civilization, and commercial relationships, offers a 
most attractive field for our products. 

A warm welcome awaits American representation and American 
goods in all Australasian markets. 

The Philippines present a pleasant picture. Ten years ago we 
furnished the islands only 2<i per cent of their imports. We now 
supply 50 per cent, and they would gladly buy the other 50 per 
cent from us, if we could offer more adequate transportation 
facilities. 

As we look southward we see the Republics of Central and South 
America, with enormous trade potentialities. How vast this trade 
may become with proper attention, encouragement, and systematic 
development can hardly be overestimated. Our foreign trade 
statistics offer convincing evidence. 

The immediate effect of war upon industrial and commercial 
policies is undoubtedly to prompt nations to make themselves as 
nearly as practicable independent in all things necessary to life 
and the national defense. When the war broke out, Great Britain 
found that the product of the Australian lead and zinc mines was 
under contract to German firms and that neither in Australia nor 
Great Britain were there reduction works adequate in capacity to 
convert the Australian product into the munitions of war which 
were needed for the defense of the Empire. Likewise, the great 
textile industries of the United States, Great Britain, and France 
were found to be largely dependent upon German dyes. 

In the long period of peace, international trade relations had 
expanded and confidence in the maintenance of peace had grown, 
until in many instances the industries of countries had become 
more or less inter-dependent. Even the neutral countries, as those 
of South America, have found themselves seriously inconvenienced 
by the difficulties attendant upon transportation, and manifest an 
inclination to diversify and develop their home industries to a 
greater extent than before. In all conferences between repre- 
sentative men of the various dominions of the British Empire, there 
is expressed a sentiment favorable to more intimate trade relations, 
and to reciprocal policies which will tend to bring this about. It 
seems probable that steps in this direction will be taken, although 
serious difficulties are certain to develop when the attempt is made 
to reduce such a policy to tangible terms. 

It may be expected that the alliances established during the war 
will influence trade policies to some extent after the war, and that 
commercial treaties will be made with a view of recognizing and 
promoting the friendly relations which exist. The antagonisms, in 
turn, which have been developed between enemy countries will, 
no doubt, affect trade relations for many years, no matter what the 
terms of the treaty of peace may be. On the whole, it may be ex- 
pected that protective tariffs will be in favor after the war, and that 
trade will be influenced to a considerable extent by commercial 
treaties. In this connection, it is to be considered that the United 
States, by reason of the great purchasing power of its people, is the 
most desirable market place in the world, and should be able to 
obtain as favorable terms for trade as are granted to any country. 

Questionnaire Addressed to San Francisco's Foreign Trade. 

1. What particular products imported or exported by your firm 
would be affected most favorably by the special facilities offered 
by a free port, such as expeditious and economic handling of 
merchandise and free access to and control of your own goods, 
packing, mixing, sorting, labeling, manipulating, manufacturing, 
etc., without the customary "red tape" and restrictions connected 
with bonded warehouses? 

2. What would be the specific advantages to you as regards the 
following: 

(a) Conditioning. 
(6) Assorting. 

(c) Repacking. 

(d) Stock carrying. 

(e) Firm sale basis for transactions. 

3. What dutiable foreign materials do you import and utilize in 
articles that you reexport? 

4. What products have you for export that require imported raw 
materials to manufacture? 

5. What is your annual volume of drawbacks? 

6. What substantial benefits will be conferred upon shippers, 
local and inland, consignees and consumers by attracting more 



cargo and ships, more transit traffic by making this harbor a base 
for transit and domestic imports? 

7. What opportunities for foreign trade expansion do free port 
facilities offer? 

8. What do you consider the special advantage from an economic, 
industrial, and commercial standpoint thai would resull from the 
establishment of a free port zone on San Francisco Bay, and what 
superior advantages have we to offer? 

9. General remarks. 

Answer to Questionnaire. 

By J. H. POLHEMUS. 

1. Practically every article that we handle or would hope to 
handle we would greatly prefer handling in a free port, inasmuch 
as we do not confine ourselves to importing goods to go directly 
to consumption in the United States, but operate overseas with 
many districts, continuously endeavoring to bring goods in from 
one section and forward them on to another. 

2. (a) Conditioning. — In regard to conditioning, the number of 
cases that can be quoted is unlimited. By way of mentioning a 
few, we might state that corn from Spanish America arriving weevily 
can be fanned, put in new sacks, and reexported to some other 
Spanish-American or other oversea market, and thus not make it 
necessary for the importer to agree to sell same in the United States 
under the piue food provisions of "Not for human consumption." 
Lots of coffee that might arrive too low to pass Government specifi- 
cations can be mixed and brought up to an admissible standard. 
Low grades of coffee can be shipped forward to the market and will 
probably reach here in quantity, so that there might be a consider- 
able volume of cheap, low-grade stuff that might find sale in some 
Asiatic market, and the business might just as well be done from 
San Francisco as from some European port. Goods that might 
become damaged by heat in hold could be examined and if their 
condition has changed so that they were not up to standard desired 
by buyers in the United States the duty has not been paid. Goods 
damaged by salt water would not automatically come under the 
head of condemnation on account of quality under pure food, etc. 

(b) Assorting. — Various beans, gums,- rices, etc., would afford 
distinct opportunities for taking advantage of the market. Goods 
that reached here and were considered not up to basis on which 
bought could be held in the free port and part accepted and part 
rejected. It would not be necessary to enter the entire amount 
covered by the bill of lading. 

(c) Repacking. — More stocks could be carried and be much more 
flexible. This would enable dealers to quote lower prices, as they 
would have a quicker turnover and not such high percentage inter- 
est per unit or dead stock with a prospect of a loss. To illustrate 
our ideas, in many parts of Spanish America some goods have to 
be packed for mule-back transportation, others in cases of a weight 
for llama transportation, and others in cases for cart transportation, 
etc. The currency in some countries demands a package that can 
be sold at an established money value which is current there, and 
goods are desired to come already in such packages, as matches, 
etc. Many firms wish their own labels, and this matter could be 
facilitated. 

(d) Stock carrying. — One of the big factors in this heading would 
of course be the carrying of larger stocks as there springs up a big 
steamer service. This is not guesswork; it is a statement of fact 
based on what has happened in every other free port. Ships that 
go periodically from Europe clear through to some destination in 
Asia could much more readily call at San Francisco and discharge 
their cargoes. This means that instead of Vladivostok, or Darien, 
or Yokohama having a direct steamer from Europe every 60 days, 
these goods could be brought in steamers that would much more 
readily find a cargo if destined to San Francisco and could go via 
the free port on steamers that would run continuously between here 
and the ports mentioned. Merchants would rather buy from San 
Francisco, as they would not have to tie up so much money in the 
stock, ordering same every two weeks instead of ordering a three 
or six months' supply at a time. The inauguration of such routes 
would lead to other commodities being brought in and markets 
found for them, which helps work up a trade route. 

It is trade routes that work up the big business. Steamship owners 
know what a dead loss empty space is in their holds and would 
much rather keep their vessels continuously running in an estab- 
lished trade route with full cargoes. 

In this connection it is well to call attention to a fundamental 
point that should not be overlooked, and that is that the authorities 
should settle on a few ports and make a drive to develop them big. 
The big ports in the world have been developed by hard driving 
and concentration. 

(e) Firm sale basis for transactions. — This is of fundamental im- 
portance and can not be overestimated. Many illustrations that 



48 



FEEE ZONES IN PORTS OF THE UNITED STATES. 



Erobably have been given by ourselves as well as by others might 
e explained at the moment as being articles that have not any 
duty, but Congresses are continuously changing, and tariffs in the 
light of past history are likely to change again. There is no reason 
why distribution to oversea ports should at all be interfered with by 
tariff consideration, which has only to do with the consumption of 
goods in the country itself. A free port would give a steady sale 
basis for a port and establish it on a firm basis as being an exchange 
market on the world's highway of traffic. 

3. This question we regard as being more applicable to those 
engaged in manufacture, but of course such articles as burlap is one 
that applies to every firm. 

4. We regard this question likewise as applying principally to 
manufacturers, and might call attention especially to fertilizing 
companies. 

5. No answer. 

6. Any merchant to-day has daily brought to his attention the 
opportunities that there would be for importation and exportation ' 
if he could get steamer space. Free ports develop trade routes 
and attract steamer space. As far as aid to the merchants in the 
surrounding country, there is no argument necessary to explain the 
advantage of being situated in a port that is directly connected with 
the different producing or manufacturing countries. 

7. In answering this question it is necessary to consider the 
institutions that are in all lines of legitimate activity, or say, pro- 
ducer, banker, manufacturer, distributor, consumer. 

The producer would have outlets for his goods established by the 
inauguration of steamer routes, and therefore would have a wider 
field of marketing. 

The banker would have the opportunity of financing many 
different lines of commodities, and on account of better transporta- 
tion facilities would probably be working in a market that would 
furnish a great deal of short-term paper, as well as have their field 
of opportunity in foreign exchange greatly enlarged. A number 
of commodities from different parts of the world generally equalize 
a demand for money, so that same can be kept constantly employed 
and would not make it necessary to seek employment through the 
stock market's demands. This is something that is greatly appreci- 
ated in Europe, as produced goods are real wealth and must neces- 
sarily have real value, whereas many of the quotable stocks are 
never considered by the average speculator on their real intrinsic 
value, but simply on what they will sell for as against tightness of 
money, etc. We believe that it is a statement of fact that articles 
of first necessity rarely stay for any prolonged time below the cost 
of production, and therefore have a fundamental value. Stocks 
can go to almost any figure irrespective of what their face values 
or book values might show. 

The manufacturers would have the advantage of direct com- 
munication with the source of supplies and/or increased distributing 
outlet. 

Distributors: In the established markets that are preeminently 
leaders and have had a long and extensive training practically all 
the exporting is done through export firms. These firms are almost 
ranked in the professional class on account of their intimate knowl- 
edge of the peoples, countries, trade customs, and general condi- 
tions of the foreign countries in which they operate. Such firms 
are already established in San Francisco, and any manufacturer of 
any commodity, whether he was located in Denver, Spokane, 
Eureka, or Sacramento, can send cuts and data to these different 
houses, who would gladly take them up with a view to presenting 
them in a proper and attractive manner, give advice as to writing 
the description in the language of the country to which they are 
addressed, and then bring them before the proper channels for 
distribution. The hit-or-miss system employed at present by every 
little manufacturer endeavoring to spend a lot of money" in useless 
advertising and sending out circulars in the wrong language to 
irresponsible accounts in different foreign countries is simply a 
symptom of nervous energy that will ultimately dwindle down to 
the proper trade distribution as explained above, and as has been 
worked out in London, Hamburg, etc. At a free port trained 
houses, as mentioned above, will continue to be represented and 
will be augmented probably by others. 

Consumer: It is always hard to tell just how much of any benefit 
will reach the ultimate consumer, but there is no denying the fact 
that direct handling and the creation of big openings of marketing 
opportunities, such as a free port, on account of its increased opera- 
tion and activities, permit the landing and marketing of goods on a 
cheaper basis. The free port likewise tends to do away with tem- 
porarily high prices on account of shortages due to lack of steamer 
service. 

In regard to the pd vantages of San Francisco Bay, these can be 
divided into what can be termed natural and artificial. 



NATURAL ADVANTAGES. 

It is one of the finest harbors in the world, with plenty of deep 
water and area for dockage. It is never frozen up and is situated in 
a climate where goods keep well as regards temperature and mois- 
ture. When one realizes the amount of tonnage that is handled at, 
say, Singapore, where big ships have to lay off, or in Hongkong, 
where there is a great amount of moisture and heat at different 
times of the year, and handling is all done by lighters, you can 
realize what a natural advantage this port has. Kobe, which is 
doing a tremendous business at present, has only a small area pro- 
tected by a breakwater, and it is necessary sometimes for steamers 
to lay out beyond it on account of no space. Steamers are attended 
by lighters. 

San Francisco is likewise located in a position that would very 
easily supply the other ports on the north and south of it, such as 
Seattle, Portland, San Pedro, San Diego. It is a natural place to 
break cargo and distribute. 

ARTIFICIAL ADVANTAGES. 

As regards artificial claims for San Francisco, we believe that 
there is no port on the Pacific that contains as many merchants that 
have gone through foreign countries and done so much work to 
establish connections and get intimately in touch with the condi- 
tions of such countries and the requirements of their trade and the 
personality of their merchants. San Francisco's trade at the present 
time is almost all its own and radiates on account of the activity of 
its merchants. In a word, the position of San Francisco can best be 
understood by anyone that is at all familiar with foreign trade by 
saying that if a man in any foreign country has any commodity, 
whether it is sugar, or coffee, or hemp, or beans, or anything else, 
he wishes to know what the market is in San Francisco, New York, 
London, and Hamburg. This is due to connections and banking, 
and the former took a great deal of time and represents a great deal 
of effort. 

9. General remarks. — The above having gone into detail quite 
extensively, we only wish to add that one of the great factors that 
hangs over 100 per cent of the importers' heads is Government red 
tape. There may be ways of handling many things, but if a mer- 
chant spent the time to study them up he would not have time to 
do any foreign business. The word "free" port in itself is a call to 
freedom of exchange which is like an invitation to the foreigner to 
trade, as he does not fear pure food regulations, undervaluation fines, 
or any technical local laws of a country, and the merchant located 
in the free port reciprocates the same feeling in the same way. 

COMMITTEE ON FREE PORT. 

George A. Newhall, chairman, H. M. Newhall & Co. 
John H. Rosseter, vice chairman, W. R. Grace & Co. 
Hon. T. S. Williams, board of harbor commissioners. 
Hon. John H. McCallum, board of harbor commissioners. 
Hon. Richard J. Welch, board of supervisors. 
Hon. J. J. Dwyer, attorney. 

C. K. Mcintosh, vice president, Bank of California. 
J. R. Hanify, J. R. Hanify & Co. 
Larry W. Harris, Ames, Harris, Neville Co. 
John Clausen, vice president, Crocker National Bank. 
W. H. Hammer, president Foreign Trade Club. 
F. F. G. Harper, customs broker. 
C. J. Sullivan, Thrift (Inc.). 
J. H. Polhemus, Hamberger-Polhemus Co. 
Cary W. Cook, American-Hawaiian Steamship Co. 
E. 0. McCormick, Southern Pacific Co. 
W. G. Barnwell, Atchison, Topeka & Santa Fe Railway. 
H. K. Faye, Western Pacific Railroad. 
Gov. George C. Pardee, Oakland. 
J. H. King, president Chamber of Commerce, Oakland. 
A. W. Maltby, Concord, Contra Costa County. 
George S. Wall, Richmond Industrial Commission, Richmond, 
Cal. 
C. P. Converse, secretary. 



Resolutions Adopted by the Board of Directors of San 
Francisco Chamber of Commerce April 9, 1918. 

Resolved, That the San Francisco Chamber of Com- 
merce approves the report to the United States Tariff 
Commission under date of February 28, 1918, made 



FR£E ZONES IN PORTS OF THE UNITED STATES. 



4'.) 



by the committee on free port appointed by the 
chamber, and 

Resolved, That the San Francisco Chamber of Com- 
merce indorses the idea of the establishment of free 
ports in the United States and urges Congress to 
enact as S0013 as possible suitable legislation therefor. 

1 herein certify that the above is a true and correct 
copy of resolutions adopted by the board of directors 
of the San Francisco Chamber of Commerce at a 
meeting held April 9, 1918. 

L. M. King, Secretary. 



Extracts from Eeport of Hearing Held by the United 
States Tariff Commission in the Assembly Room of 
the Merchants' Association, of New York, December 
18 and 19, 1917. 

William Harris Douglas, chairman, sub- 
committee and foreign export committee of the Mer- 
chants' Association of New York City: 

Gentlemen of the commission: I have pleasure in 
addressing you on behalf of the subcommittee of the 
foreign trades committee of the Merchants' Associa- 
tion. Our association embraces the largest number 
of merchants of the city of New York, and therefore 
we speak for those members, although many will 
appear before you in person. The Merchants' Asso- 
ciation sent an agent abroad to study this subject, 
and then we took this up ourselves through experts 
and engineers, and held public hearings. Those 
hearings were very enlightening, and quite extensive, 
as far as the personnel of the people who appeared 
before us is concerned, and they almost unanimously 
agreed that a free port or free zone would be a desirable 
thing to have, and that a desirable place to have it 
would be at the port of New York. 

A free port is necessary, first, in order to attract 
shipping. That is what originates a free port. If 
you can bring the shipping of the world to your doors 
by reason of any special advantages you can then 
very readily acquire the status of a great commercial 
country. You must have a few advantages. 

^ * * =K * =}: 

Now, just a word or two in connection with the 
drawback system and the bonded warehouse. Many 
people think those two things make a free port 
unnecessary. A bonded warehouse takes in goods. 
They must be estimated and weighed, but here we 
have not the legal right nor the space to repack and 
reassemble goods, both of which are essential. The 
inspection of those goods requires three or four days' 
time. It is true that you can bring the goods into 
this country by paying the duty, and that you can 
secure the drawback, which is 99 per cent, if the goods 
are exported. But you have the interest loss, and 
you have the loss of customhouse values, and all 
those annoyances. Therefore, the opinion of cxvvy 
man is that those systems, while coordinated, are not 
according to his desires. He is afraid of them, and 
if you say he can put those goods in the free port and 
take them away as he pleases, he knows the situation 
and therefore he is not troubled with red tape in the 
customhouse or charges he is not familiar with. 

When you come to the question of the merchants 
abroad, that is most important. A free port must and 
should attract the import trade to this country. There 



is no reason in the world, with our Panama Canal. 
a large share of the raw products of the world should 
not come to our markets, if we establish a free p i 
with the advantages which 1 have mentioned. 

* * * * :i: 

The exporter would go there, and the commit i n 
house would have to follow for two reasons: first, our 
port is congested; and we must hire wareho use -s at high 
prices, and store goods. But it is not a useful system, 
as we do it at heavy expense of cartage and lighterage 
whereas, those charges could be eliminated, or reduced 
to a minimum in a free port. 

The Chairman. You are speaking of domestic 
exports I 

Mr. Douglas. Yes. 

The Chairman. And not speaking about h reign 
commerce '. 

Mr. Douglas. Not about foreign commerce. 

The Chairman. And your idea is that the great 
volume of domestic exports could he handled through 
the free zone ? 

Mr. Douglas. I think every merchant w uld have 
to have some establishment there within the zone. 

The Chairman. How I ig a free zone do you antici- 
pate \ 

Mr. Douglas. Not less than 300 to 500 acres. 
Some people say that 3,000 acres would not be t 
large. 

Commissioner Kent. Is not that small? 

Mr. Douglas. If We start within 500, we mighl 
grow soon to 5,000. 

Commissioner Kent. Do I understand you to say 
you think most of the domestic export would go 
through the free zone? 

Mr. Douglas. Oh, no. When it is a question of the 
manufactured goods, and having the vessel on the 
berth through the regular channels, people to load her 
and regular commerce to ports in any part of the 
world, there would be no necessity to go to a free zone. 
The goods would come there from all parts of the 
country, and would go- right on the vessel loading. 
The regular lines that are loading a regular vessel 
every 10 days or 2 weeks to Rio de Janeiro, or other 
places abroad, would probably not utilize the free zone 
as their loading place. 

The Chairman. Do you mean liners ? 

Mr. Douglas. Yes. 

The Chairman. Would you do that also with vessels 
going straight, with complete cargoes, to foreign 
ports ? 

Mr. Doltglas. If they are loaded on the berth, yes. 
A great advantage to the exporter who is not a regular 
loader for other people is that he could accumulate his 
freight through a warehouse in the zone. When the 
vessel is chartered by him, he has his goods all ready 
for shipment. He sends his vessel there and gets her 
loaded and awa} r from the port as quickly as possible. 
He does not have to do it by way of the regular liner, 
which sends goods regularly and takes goods for other 
people. The general idea may be that the regular 
liner taking freight, say, to Buenos Aires, is the only 
one that carried freight to Buenos Aire-. That i- not 
correct. All of the big merchants do loading < n their 
own account. That is the advantage of the free port, 
But smaller merchants would patronize the general 
lines of communication, and not go through the free 
port. . 



92621—19- 



50 



FREE ZONES. IN PORTS OF THE UNITED STATES. 



Commissioner Kent. If a man with raw material 
wanted to collect a cargo, having some imported 
goods to be reshipped, and desired to mix them with 
some domestic goods for export, do you think he 
would go to the free zone ? 

Mr. Douglas. Yes. It would be to his advantage 
to do so. 

Commissioner Kent. Would not that sort of dis- 
position of the cargo put a large part of the port's 
commerce in the free zone? Are not the cargoes 
largely mixed, as it is ? 

Mr. Douglas. The amount of export goods of any 
kind and description whi; h would go through the 
free zone as compared with the amount that would 
go in the regular way, if the free zone were established, 
is a difficult question to answer, of course. My own 
opinion is that the free zone's importance would grow, 
and that ultimately 25 or 30 per cent of the exportable 
goods would go through the free zone. As to manufac- 
tured goods, unless there is mixing or assembling to be 
considered, they would not go through the free zone. 

I do not think the free zone would do away with the 
advantages which these freight and passenger steamers 
now have. 

****** 

The question of assembling is very important. 
The manufacturers are required to pay in accordance 
with the weight and size of their packages. If they 
can send their goods knocked down and have proper 
floor space, so that they could have men assemble 
the goods on arrival, that would be different. 
****** 

I want to make this country the storehouse of the 
world, as far as lies in our power. Now, when we have 
those shipping facilities which we have not had prior 
to this time, they will be a large factor in helping in 
that direction. 

That embraces, gentlemen, our ideas, except to 
say that we are thoroughly in earnest in this matter, 
and we thoroughly believe in the proposition. We 
believe it will be for the benefit, not only of our city, 
but of the whole country, and we believe the free 
zone should ex : st here and elsewhere. If we make a 
chain of free zones, you could have a free zone in the 
Philippine Islands, and other points I have mentioned. 
I believe that inside of 25 years we will be the greatest 
importing and exporting country that the sun of the 
world has ever shown upon. The Philippine Islands 
are the natural point of the East. They are under our 
control to-day, and giving us that advantage, with the 
other advantages which free zones would give us here, 
we will have almost an ideal situation. 

****** 

Mr. Robert H. Patchin. I am the manager of the 
foreign trade department of W. R. Grace & Co., 
exporters and importers, and I would like to present a 
few views to the United States Tariff Commission 
through you gentlemen at this hearing at the Mer- 
chants' Association to-day. 

The natural growth of the import trade o! New 
York has been enormously accelerated by the war 
conditions, and this has brought us face to face with 
the problems of the discharge and handling of our im- 
ports. The same is true of other ports in the United 
States. 

Whereas in the past, importers were given fair 
acilities by the steamship companies and wharf 



owners to distribute their goods, they are now pushed 
to remove them immediately on arrival or incur 
wharfage expenses, the steamship companies in many 
cases putting the goods in store tor our account. We 
have just received a notification from the Panama 
Steamship Co. that certain sugar to arrive in a few 
days must be taken from steamer by lighters, as they 
will not allow us to handle on the dock. 

The congestion is becoming so serious that it is 
only a question of time when most goods will have to 
be handled twice, once from the steamer to some 
place where the goods can be sorted out, weighed, and 
distributed, and once to destination. The extra 
expanse will operate to discourage the consignment of 
produce to this port. 

The reason for this state of affairs is that the port 
of New York is not only chronicallv behind in its 
facilities as compared with its growth, but the con- 
ditions arising out of the war have made this chronic 
defect more evident and shown that the port is not 
prepared for natural expansion. 

One great requirement is the preliminary separation 
of imports into three classes; that is, free goods, duti- 
able goods, and goods in transit. 

Since the increase of wharf and storage space is 
urgent, the free-zone project becomes a phase of, and 
must be considered in connection with, the larger 
problem of providing more facilities for present and 
future requirements. The free-zone proposition en- 
ables the simplification of the larger problem and in 
fact becomes an almost necessary part of it. 

•P t* *r *t» . *P «p 

The establishment of the outer free zone would not in 
any way prejudice or render useless any facilities now 
existing. The present docks, warehouses, lighters, 
etc., would be relieved of their present congestion and 
still be fully employed with the constantly growing 
traffic of the port. 

****** 

One of our departments reports that the cost of 
handling wool, sugar, and cotton is now about double 
compared with the cost before the war — 1914. Be- 
sides direct cost, the congestion operates indirectly to 
increase the handling charges. Instead of being al- 
lowed to sort out and weigh the goods on the dock, 
they are now to a great extent forced into warehouses, 
although, were a little more time given, they could be 
be shipped without further expense to the consumer. 
Moreover, in view of the warehouses on the water 
front being congested, we are sometimes obliged to 
send the goods to warehouses off the water front, and 
sometimes to warehouses of a poor character, involv- 
ing high rates of fire insurance. All this is additional 
expense which under proper conditions would be 
unnecessary. 

The establishment of a free zone in the harbor of 
New York will bring to New York shipments from 
Asia, South America, Australia, and other producing 
countries for distribution not only to the United States 
and Canada, but also to Europe, the West Indies, and 
the east coast of South America. 

For instance, pepper will come from the East to be 
classified in New York according to the requirements 
of the various markets, and from New York shipped 
to Europe, South America, Canada, West Indies, etc. 
This business was done previously in Hamburg. That 
brought to Hamburg money to the steamship com- 
panies that carried the goods, the docks and ware- 



FREE ZONES IN POETS OF THE UNITED STATES. 



51 



houses that held the goods, the laborers, the bankers 
who advanced the money, the shippers, and others. 

To establish New York as such an international 
center, the necessary American merchant marine is 
now in course of development. The banking facilities 
are also ready, and all that is necessary is a free zone 
in which the goods could be stored, reassorted if neces- 
sary, for the different markets, and, in general, handled 
without any of the restrictions inherent to the system 
of bonded warehouses and drawbacks. 

****** 

Commissioner Kent. Do you think a free port would 
expedite the making up or assembling of cargoes ? 

Air. Patchin. Yes. Every time you get part of a 
cargo it would help you to finish it up with the bal- 
ance needed. 

Regarding the commerce which has come to this 
country through disruption of trade routes, we may 
cite rice as one commodity which has come across the 
Pacific to San Francisco. Mr. Kent, at a hearing in 
San Francisco where that was brought out in some 
statements in relation to the blending and mixing of 
rice, will know the importance of what I am referring 
to. The imports of rice now come across the United 
States and go to Cuban, Central American, and Carib- 
bean ports. This transcontinental traffic is so large 
that consideration has been given to its stoppage, 
since it takes up so many freight cars. 

****** 

In the same way cocoa and coffee have increased, 
and there have been large shipments of coffee to 
Vladivostok. I do not think much coffee was ex- 
ported from San Francisco to Vladivostok before the 
war. 

The tea routes have been somewhat disrupted, and 
the presence of imported tea in large ouantities at 
New York and New Orleans and San Francisco has 
brought to these ports a very large number of buyers 
formerly accustomed to going to Europe. That has 
stimulated the export trade. 

There has been a movement of American cotton 
goods to South American ports vastly greater than 
that before the war, through buyers coming here from 
South America. 

Tin is moving in increased quantities from the Straits 
Settlements to the United States, and London's control 
of the tin market is not as complete as formerly. 

Pepper, which at a hearing in San Francisco was 
decided to be not pepper at all, it being a blend, 
gathered and blended at Singapore, might also be 
mentioned. 

At the present time there is an absolute conglom- 
eration of imports for consumption in the United 
States, imports dutiable, which are placed in bonded 
warehouses, and imports on the free list, which move 
in a way of their own. I have tried to obtain the 
complete statistics of the movement of foreign produce 
transshipped through this port. I have no doubt that 
the Tariff Commission has worked that out. 

Commissioner Kent. If you had a ship loaded very 
largely with free goods, coming directly into this 
country, and there was, say, 10 per cent of the cargo 
that ^was dutiable, but destined for other countries, 



how would you handle that? Would you run your 
whole ship into the free zone? 

Mr. Patchtn. You would not have to have bonded 
warehouses in the free zone. The goods would not be 
dutiable as long as they remained in the free zone. 
The free goods going into the United States would pass 
through the free zone and through the customs. 

The Chairman. Then there is the question as to the 
extent of the facilities available and the extent of the 
investment you have ? 

Mr. Patchin. Yes. 

The Chairman. There might be a large increase of 
investments, and there would be no direct gain in the 
free port ? 

Mr. Patchin. The policy to be followed would have 
to fit the given needs. 

****** 

Commissioner Kent. Would it be your idea that if 
a free zone were established, that your firm would have 
its own specific warehouses or warehouse in that zone, 
or would you expect to use the common warehouses 
established by some other agency ? 

Mr. Patchin. We would work either way, according 
to what was established. 

Commissioner Kent. It would be a question of 
price ? 

Mr. Patchin. Partly. I think the merchants, ex- 
porters, and others would follow what seemed to be 
most -advantageous for the general purposes of this 
scheme. If the free port could be filled with private 
warehouses, and in that way proved to be less of a 
burden upon the entire community, that might influ- 
ence them. 

Commissioner Kent. Would you consider that the 
big lines would have their own places in the free port, 
and they would be supplemented by berths and ware- 
houses for tramps ? 

Mr. Patchin. I should think so. 

Commissioner Kent. Or do you think it would be 
a matter of going into and taking a place by chance? 

Mr. Patchin. 1 do not think they would want to 
stand in line. 

Commissioner Kent. Have you considered the cus- 
toms administrative rules and laws and the possibilities 
of changing them? 

Mr. Patchin. No, sir. Most of our exports are 
articles on the free list. We are not manu acturers, 
and the question of raw material does not arise. 

Commissioner Kent. You do not use the drawback 
system at all? 

Mr. Patchin. Very, very little. I think the manu- 
facturers enjoy that. 

Commissioner Kent. Have you any impression as 
to whether a considerable development of manu- 
facturing operations might be expected in the free 
zone? 

Mr. Patchin. All the testimony I have heard and 
read on the subject implies there would be, but it is 
usually in the form of a general expansion. It seems 
that the questions of fuel supply, houses in the neigh- 
borhood, to take care of the force, etc., would enter 
largely into that matter. I could offer no opinion of 
value regarding it. 

As Mr. Douglas pointed out, manufacturing is due 
to local evolution. 

The Chairman. Your impression is that it is a trans- 
shipment business matter ? 



52 



FREE ZONES IN POETS OF THE UNITED STATES. 



Mr. Patchin. Yes, sir. 
* * * 



It is largely shipping. 



Mr. Calvin Tomkins, 30 Church Street, New York 
City. Wc bring; gypsum from Canada and manu- 
facture it into plaster in New Jersey. It was free of 
duty for a time, and then a duty of 10 cents a ton was 
imposed. That does not pay the cost of weighing the 
material. The Government avoids the responsibility 
of weighing by throwing it on the importer, who 
weighs the material at his own expense, which adds to 
the charge, and the Government expenses take up 
what there is in the drawback. We had the draw- 
backs for a number of years on the material we 
exported to Cuba and South America, 

The Chairman. Did you export much 1 

Mr. Tomkins. Not much, but it was growing. The 
whole system is absurd, as the Government does not 
receive the cost of weighing. 

The Chairman. With respect to your particular 
commodity ? 

Mr. Tomkins. Yes. The drawback was a small 
item not worth bothering about, and we dropped it. 

When I was at Hamburg five years ago, 1 was in- 
formed that the free port idea was not popular with 
the Imperial German Government. It was a survival 
of the free city privileges, and was one of the privileges 
which the city saved to itself when it entered the 
Imperial Customs Union. Its retention was a con- 
sideration for going into the Imperial system, and its 
importance was rather exaggerated. At leabt, that is 
the impression I received at Hamburg — because of the 
burdensome and restrictive regulations imposed by 
the German Government. 

The free port privilege at Bremen was not used 
because the Government there threw so many harass- 
ing restrictions around it that it was not worth con- 
tending with them. At Lubeck the same conditions 
prevailed. I did not go to Copenhagen. 

I tope the idea will take root, so that the country 
can be in position to exchange its commodities with 
those from abroad to advantage. 

Mr. R. S. MacElwee, lecturer in economics and 
foreign trade, Columbia University, New York City. 

I should like to add to Mr. Tomkins's statement that 
there are two other free ports in Germany — one at 
Bremen and the other at Emden. At Emden, the 
Government introduced the free port. The antagon- 
ism is not between the Government and the free ports, 
but between certain interests and the free ports. 
There are several free ports established by the Im- 
perial Government. 

The other point I wish to make at this time is: I 
happened to write my Doctor's Dissertation on the 
Port of Hamburg. I can give you the exact cost of 
every step and the percentage of the annual budget 
at the port of Hamburg. I have not them with me, 
but can furnish them. I stopped where Prof. Clapp 
commenced. My work on the Port of Hamburg 
antedates that of Prof. Clapp, and if you would like 
to have it, I have one or two copies. 

The Chairman. Does the port pay for itself ? 

Mr. MacElwee. The port pays. 

Commissioner Kent. Is there any sinking fund ? 

Mr. MacElwee. Yes. 

The Chairman. How about operating expenses ? 

Mr. MacElwee. They cover the operating expenses. 
I can give you those figures accurately if you desire 
to have them. 



The Chairman. We are interested to know whether, 
in your mind, the free port or free zone serves chiefly 
for the purpose of shipping and mercantile business, 
or whether it is important also to manufacturing ? 

Mr. MacElwee. It is primarily a transshipping 
matter. It is the consignment market. We might in 
this country manufacture binder twine and certain 
things of that land in the free zone. 

The Chairman. Have you any impression as to the 
volume of additional transhipping business which 
would accrue from the establishment of a free zone ? 

Mr. MacElwee. I think at first it would not be 
very much, but gradually we might build up American 
feeder fines to Canada, Mexico, and South America. 
The free port brings business. 

The Chairman. Have you any impression as to 
any kinds of commodities ? You do not speak of any 
business going out through the free zone. 

Mr. MacElwee. It would have no effect. 

The Chairman. Would there be any probability of 
goods coming to this port for transshipment ? 

Mr. MacElwee. Yes. It would bring a good deal. 
I do not see why an American free port should not 
supersede Hamburg, as it is the load factor in ship- 
ments. 

The Chairman. Now, as to the relative advantage 
of a free zone and the enlargement of the bonded ware- 
house system. What have you to say on that ? 

Mr. MacElwee. 1 think Mr. Tomkins's bonded ware- 
house is a free zone. I think it is a li ttle camouflage for 
the very radical protectionists who would feel that 
their institution of protectionism was being broken 
down. I believe the bonded warehouse would be a 
free zone. I do not see any particular difference. 

The Chairman. You would not abolish the present 
bonded warehouses, would you ? 

Mr. MacElwee. No, sir. They are not abolished 
at Hamburg. 

The Chairman. Have you given any attention to 
the present course of legislation in the matter of 
bonded warehouses ? 

Mr. MacElwee. No, sir. 

* * * * $ * 

Mr. Lucius Root Eastman. Jr., president The 
Hills Bros. Co., -New York: 

Most of my study has been as chairman of the foreign 
trade cities committee. I concur in much that Mr. 
Tomkins and Dr. MacElwee have stated. We import 
dry fruits, dromedary dates, and currants from Greece, 
citron from the Mediterranean. We repack and 
standardize these goods, and export to Mexico and 
other countries. This business brought us in contact 
with the drawback system. I have come to the con- 
clusion that the manufacturing end would be largely 
an assembling of food products. With the use of 
sugar, and the drawback on sugar, the difficulty 
which we experienced there has made the drawback 
claims, in our own case, so complicated and there are 
so many points which are objectionable, that we 
dropped making such claims. 

The Chairman. The process of identification, too ? 

Mr. Eastman. Yes. I dislike the use of the term 
"free port." I would prefer "free zone." I think 
the phrase "free port" creates the wrong idea in the 
minds of people not familiar with this subject, 



FEEE ZONES IN PORTS OF THE UNITED STATES. 



53 



I am not sure that I can agree with Mr. Tomkins 
that the expanding of the warehouse system will give 
what afree zone will give us. Thechfficultyof policing, 
the difficulty of manufacturing in the bondeil ware- 
house, makes it somewhat cumbersome. 

I would not take advantage of the expanded bonded 
warehouse in mv own business, because of certain 
lack of freedom. 

The Chairman". That would seem to be inevitable 
under any conceivable regulation. 

Mr. Eastman. Yes; and as the head of my com- 
pany, in spite of the care we could give and the 
pleasantest relations between ourselves and the cus- 
toms people, we still got. mixed up. 

Commissioner Kent. What are the troubles ? 

Mr. Eastman. Identification of packages and manu- 
factures. From my point of view, 80 per cent of 
my business comes in raw goods, and is used in this 
country. For the other 20 per cent which I manu- 
facture, and which goes into Canada, I do not need 
the free zone. It would only be when I had developed 
my business to 50-50 that that question might come 
up. 

Commissioner Kent. Do you repack your dates at 
the bonded warehouse ? 

Mr. Eastman. No, sir. We pay our duty on them 
and pack them in our packing plant. It does not 
make any difference whether it is a free zone or a 
bonded warehouse. There are to my mind possi- 
bilities of liberalizing the present methods of bonded 
warehouses, and the drawback system, which would 
relieve many of the things which bother the manu- 
facturer and merchant to-day. For instance, the 
tme it takes to get your drawback is realty foolish. 

The Chairman. We would like some suggestions on 
that point. 

Mr. Eastman. We have been able by closely follow- 
ing it up, to get better results, but when it runs into 
thousands of dollars, the interest charges surprised 
me when I investigated the question. 

I think if there is to be a free zone, it should be 
limited to one, and not several in a port. I think 
there would be difficulty of administration if several 
were allowed. 

Also, I think the question is one largely of the ex- 
panding commerce of this country. That is the mam 
strength of this country. 

The Chairman. Do you mean imports and exports, 
or the transshipping trade ? 

Mr. Eastman. The transshipping trade is what is 
in my mmd. It is only an element, but to my mind 
the free zone w T ould be a very helpful factor in building 
up this trade. 

% % % & % % 

Alfred Smith, manager, industrial bureau, Mer- 
chants' Association of New York: 

Gentlemen of the commission: By far the most 
beneficial and far-reaching effect of a free port is on 
the transshipment trade, because this is the trade 
which is most hampered by customs restrictions and 
supervision. Commodities entering transshipment 
trade are frequenty shipped in large quantities and 
at a narrow margin of profit, and for this reason are 
especially benefited by any advantage which decreases 
costs, even if only to a slight degree. In a free port 
merchandise may be unloaded from the inbound 
ship, placed in warehouses, and reshipped at a future 
date without any customs formalities whatsoever, 



thus eliminating the cost and annoyance of the for- 
malities connected with storing goods in a bonded 
warehouse. 

Transshinment trade is also Carried on in a manner 
which differs considerably from ordinary trade. 
More and more it becomes the custom to sell com- 
modities while they are still on the water, or to con- 
sign them to some port of the region of destination 
for sale and final distribution after arrival. This 
practice requires a large central port with adequate 
storage space, transfer facilities for the speedy han- 
dling of goods in transshipment, opportunity for 
unrestricted division and consolidation of shipments, 
a large market in which to sell, and efficient and far- 
reaching transportation systems for distributing mer- 
chandise to ultimate destination after it has been 
sold. A free port with its great freedom from customs 
supervision, specialized storage facilities, steamship 
connections with all parts of the world, and its low 
charges offers an especially strong inducement for 
transshipment trade to center there. 

The so-called colonial products such as rice, coffee, 
cocoa, sugar, cotton, wool, rubber, and mahogany are 
fundamentally transshipment trade products. In 
other words, a great part of the world's trade in this 
type of product is not carried on direct from ports 
in producing regions to those of ultimate consumption; 
and during the shipment of such products cargoes 
are frequently divided, consolidated, and reconsigned. 
Furthermore, the shipment and sale of such com- 
modities are peculiarly benefited by the facilities of a 
free port. Owing to scarcity of labor, capital, and 
cheap machinery in most of the countries which are 
sources of these products and also because they can 
usually be shipped more economically in a crude state 
or in bulk, they are compelled to seek those centers 
where they can most cheaply be sorted, cleaned, 
refined, graded, mixed, and repacked. For such 
operations a free port is excellently adapted, and 
therefore has immense advantages over the ordinary 
transshipment center. 

A great center for merchandise is a powerful trade 
magnet and in producing such a center a free port is 
very instrumental in increasing the commerce of a 
port as a whole. A large and active free port clearing 
house for the world's merchandise guaranties full 
cargoes to all vessels entering it, and at the same 
time offers a market to which vessels can bring cargo 
as ballast, which is certain to be sold at profitable 
prices. For this reason a free port promotes direct 
steamship service with ports hitherto reached only 
by transshipment service because of the difficulty 
of obtaining full cargoes for vessels bound to those 
ports, as well as the difficulty of disposing of parts 
of cargoes brought from them. 

A free port attracts ships on account of the absence 
of many of the usual formalities and the charges and 
delays connected therewith. For instance, in the 
port of New York at the present time a preliminary 
permit must be obtained before a ship can dock and 
discharge its cargo, otherwise 24 hours must ensue 
from the time of obtaining the permit to the time of 
discharging the cargo. A six months' bond for 
$50,000" has to be filed with the customs authorities. 

Commissioner Taussig. Is that inevitable and nec- 
essary? Can that be remedied? 

Mr. Smith. I understand from telephone commu- 
nication that it is unavoidable under the present law. 



54 



FBEE ZONES IN POETS OF THE UNITED STATES. 



Commissioner Taussig. Is the present law un- 
avoidable ? 

Mr. Smith. I could not say, except so far as I know 
it is always the case in all ports. It has never been 
done away with in American and foreign ports ; in fact, 
I think perhaps these formalities have been in use and 
vogue perhaps more in foreign than American ports. 

Commissioner Taussig. Then there is no disadvan- 
tage with American as compared with foreign ports ? 

Mr. Smith. Not that I know of. A free port will 
take charge of that, although preliminary permits are 
almost always taken out by steamship lines and by 
most steamship agents in advance of the arrival of the 
vessel. Nevertheless, in some cases, the captain 
obtains his preliminary or regular permit after arrival, 
and this incurs delay. In speaking on this subject 
officials of steamship lines entering the free ports of 
Hamburg and Bremen have stated that the dispatch 
with which a vessel can enter and clear the German 
free ports is of distinct value to shipping lines. 

To some extent the direct import trade of the port 
is facilitated by the free port on account of lack of 
customs formalities and regulations. For instance, 
in the port of New York, u the importer has been 
delayed 48 hours in obtaining the necessary papers for 
getting his goods through customs, the merchandise 
is sent to bonded warehouses. This necessitates the 
formalities and cost of getting this merchandise out 
of the bonded warehouses before it can be shipped to 
the interior. 

Indirectly a free port, if it is successful in creating 
transshipment trade or promoting the import trade, 
will tend to bring more vessels to the port. This is 
in turn creates additional cargo-carrying space which 
is the reason why exporters will seek that port. A 
free port is of direct benefit to the industries tributary 
to the port, because of the great raw-material market 
which it creates. This raw-material market gives the 
manufacturer the advantage of a near-by source of 
supplies which may be obtained more easily, more 
quickly, and more cheaply than if the market did not 
exist. Furthermore, the raw-material market created 
by the free port has peculiar advantages because refin- 
ing, grading, mixing, and similar privileges make possi- 
ble the purchase of almost any grade or type of mate- 
rial desired. The ordinary manufacturer buying in a 
small or far-distant market is often at the disadvantage 
of being compelled to purchase materials in incon- 
venient quantities, of unsuitable grades, long in ad- 
vance of consumption', and without the opportunity of 
personal inspection. As a result such a purchaser 
finds it a serious problem to purchase economically 
just what he needs and when he needs it. 

If raw materials are purchased at a free port for 
future use, the payment of customs duties may be 
deferred by storage in the free-port warehouses more 
economically and satisfactorily than in bonded ware- 
houses. 

The experience of European free ports has shown 
that the creation of industry in a free port is a minor 
result of its operation. 

Nevertheless, a free-port location offers great advan- 
tages to manufacturers producing chiefly for the foreign 
market and using extensively imported raw materials 
subject to a duty; such manufacturers will avail them- 
selves of free-port locations. A free port is also na 
advantageous location for plants assembling foreign- 
made products both for reshipment and for sale in 
customs territory. 



The operation of the European free ports, both large 
and small, shows clearly that in order to be successful 
a free port must be located in a port advantageously 
situated for transshipment trade; and it is also shown 
that in order to take full advantage of free-port facili- 
ties, a port must have efficient equipment and well 
coordinated transportation systems. This is true 
because a free port is chiefly a mechanism for facilitat- 
ing trade rather than creating it, although the creation 
of trade is undoubtedly an important result. 

The above statements as to the effect of free-port 
facilities on commerce and industry are verified by the 
experiences of the free ports at Hamburg, Bremen, 
Copenhagen, and at minor European ports. 

****** 

Formerly London, Liverpool, and Hamburg were 
important ports for the collection of South American 
products and their distribution to the United States. 
For example, much of the Brazilian coffee reached the 
United States via Hamburg. London sold us quanti- 
ties of Brazilian rubber. Our manufacturers and im- 
porters purchased Argentine wool and hides and 
Peruvian cotton in European ports. If a great trans- 
shipment port and central market is created, in which 
surplus products can be disposed of advantageously, 
and to which therefore shippers and carriers will bring 
raw materials from all over South America, it will be 
possible to obtain a much greater portion of the prod- 
ucts direct than was formerly the case. 

The United States and Canada have always bought 
great quantities of Australian, African, and far eastern 
raw materials in European ports. For illustration, 
East Indian spices have been purchased extensively 
through Amsterdam ; London has been the great mar- 
ket for Australian wool ; a large part of our imports of 
African rubber and mahogany come through Liver- 
pool. The development of a great free raw-material 
market would, to some extent, break down the power 
of the European ports in the African, Australian, and 
far eastern trade. 

The outbreak of the war came so soon after the 
completion of the Panama Canal that the trade routes 
through the canal have never been established. The 
completion of the canal has created a great oppor- 
tunity for developing a collecting and distributing 
port on our Atlantic coast. On the one hand, there 
are the great raw material sources of the west coast 
of South and Central America, our own Pacific coast, 
the Philippines, Australia, and New Zealand, and even 
more distinct regions; and on the other hand there are 
the industrial nations of Europe, the United States, 
and eastern Canada demanding raw materials and 
food products of the lands bordering on the Pacific. 
The determination of whether or not this trade will 
remain under the control of an American port or pass 
to the great transshipment ports of Europe rests 
largely with us. 

The free port in Hamburg has been one of the chief 
factors, if not the greatest, in developing the enormous 
transshipment trade and international market of that 
city; the free port at Copenhagen has developed the 
transhipment trade of that port; and the port of New 
York should receive as valuable benefits from the 
creation of a free port as Hamburg or Copenhagen, for 
in other respects New York is now well qualified to 
develop transshipment trade. 

While the greatest value of a free port would be the 
aid given in developing a transshipment center and a 



FBEE ZONES IN PORTS OF THE UNITED STATES. 



65 



market for raw materials rivaling those of Europe, it 
would also havo othor beneficial effects which should 
be considered. 

After the cessation of the war activities there will be 
urgent demand for additional and more efficient 
facilities for the handling of the enormous export and 
import trade which will undoubtedly come to the port 
of Now York. It will be unwise to install new and 
additional facilities in any manner except that which 
the experience of foreign ports has proved to be the 
most efficient. A study of the free ports of Hamburg, 
Bremen, and Copenhagen shows that the most efficient 
part of tho port is the free district, to which a great 
part of the commerce of those ports drifts. 

Furthermore, the efficiency of the free districts of 
European ports rises not only from the excellence of 
ship basins, piers, and warehouses, but is a direct 
result of the operation of the free port principle. Port 
authorities agree that maximum port efficiency can 
be obtained only through a combined efficiency of 
mechanical facilities and port administration. 

After the war manufacturers of this country will be 
endeavoring to capture new foreign markets, and 
therefore such manufacturers as use imported raw 
materials extensively would be able to locate export 
branch factories advantageously in the free port. 
This country is also to some extent an importer of 
foreign made products which could be advantageously 
assembled in a free port both for sale in customs terri- 
tory and reshipment to neighboring countries. In 
developing such industries a free port would create an 
addition to the industry of this country, for the reason 
that a large part of such operations would otherwise 
take place abroad to the benefit of foreign capital and 
foreign labor. 

Based on the above facts, we maintain that a free 
port should be installed because the development of a 
great collection and distribution center, a great inter- 
national market, a center for more shipping lines, a 
transshipment point, and a more efficient port for the 
importation and exportation of merchandise would — 

(1) Promote the commercial supremacy of the 
United States in all parts of the world. 

(2) Directly benefit many of the industries of this 
country using foreign raw materials. 

(3) Create additional industry in the United States. 
The Chairman. Have you in mind foreign dutiable 

raw materials ? 

Mr. Smith. Yes; I understand from merchants do- 
ing business in foreign ports and merchants here, that 
a great many customs formalities apply to nondurable 
as well as dutiable goods, and that it is not the absence 
of duty or the absence of the particular formality 
which imposes a duty that restricts operations in a 
port, but it is the trifling delays, the annoyances, 
which prevent a district from becoming a free market, 
and it is the free market feature of the free ports, par- 
ticularly at Hamburg, that make them valuable as a 
trade headquarters, as merchandizing places. 

The Chairman. Your raw materials have to get to 
the other parts of the country, and at the same time 
they have to encounter those customary formalities, 
free port or no free port. 

Mr. Smith. The point is, the raw materials remain 
for an indefinite^ period frequently in the port. 
****** 

James W. Reed, assistant engineer, board of esti- 
mate and apportionment, Municipal Building, New 
York City: 



I represent in a humblo way the City of Now York 
and its administration, and my attention has been 
given to free zones in this way : I was led to study tho 
conditions surrounding and governing the growth of 
the commerce of this port, and from that to a considera- 
tion of the general factors which enter into the growth 
of commerce at a port. As I listened to the discussion 
this morning, it seemed to me that all wo can ask tho 
United States Government to do is to lift the barriers, 
if such exist, and permit us to have an additional 
advantage hi this port, which wo hope you will extend 
to other ports of the United States, as the natural 
advantages or characteristics of those ports will 
demand. 

The Chairman. That is permissive legislation that 
you havo in mind ? 

Mr. Reed. Yes, sir; permissive legislation. 
****** 

Mr. Robert S. Guilford, representing the inward 
freight department of the International Mercantile 
Marine Co. 

As we understand it, there would be no change in 
the present method of handling our ships, but a free 
port would do much toward relieving congestion on 
the piers as goods intended for the zone could be at 
once forwarded without loss of time through customs 
formalities, such as now pertain. 

A free port would also tend to greatly increase 
transshipping, resulting in increased business to the 
ocear carriers serving the port and offers a. large field 
for expansion in the developing of new trade routes, 
and so forth. 

We feel that a properly equipped free port is to 
be desired. 

I can only say that as carriers wj are interested in 
anything that means prompter removal of the goods 
from the piers. Under the free-zone system, we be- 
lieve the freight would be removed quicker from the 
piers. 

Commissioner Kent. The question comes up as to 
how much of that demurrage could be lessened by 
reform in the present customs laws. I would like to 
have you state, if you can, what delays seem to be 
inevitable in current administration, and what would 
remain if an attempt- were made to simplify the 
administration of the customs laws. 

Mr. Guilford. Many dutiable goods are weighed 
on the pier, and that causes. delay. 

Commissioner Kent. How about sampling? 

Mr. Guilford. Sampling cases causes delay. If 
the free zone were here, that would be done in the 
warehouse. 

Commissioner Kent. Could you make an estimate 
of the average amount of delay that would be elimi- 
nated under the free-zone plan ? 

Mr. Guilford. I should say four or five days, at 
least. 

Commissioner Kent. For each vessel ? 

Mr. Guilford. No ; but the cargo would be cleared 
from the pier that much quicker. 

* * * * * * 

Mr. Fred H. Reis, Loeb & Schoenfeld Co., 27 West 
Twenty-third Street, New York City. 

Our concern has been importing laces, embroid- 
eries, curtains, and handkerchiefs for the last 40 
years, and most of their exportations to South and 
Central America have been direct from Switzerland 
or England. Our main factories ars in Switzerland. 
Many of our direct exports were cut off by the war. 



56 



FBEE ZONES IN PORTS OF THE UNITED STATES. 



We tried to do our exporting to New York, as a good 
many lines were discontinued, and many of them 
were lying on bond, many of which we would have 
liked to have disposed of. We had a good many 
cases where we could have disposed of our merchan- 
dise in hulk, but unfortunately we found the goods 
were not packed in the proper way. The duty on 
our merchandise in most cases in South and Central 
America is based on gross weight. The goods are 
packed in heavy boxes, with heavy packing, which is 
one of the reasons why we could not dispose of our 
goods as we would have liked. We tried to get per- 
mission from the customshouse to repack the goods, 
even under the supervision of the customs authorities, 
but the customshouse regulations did not permit the 
change of any package which goes into the customs- 
house or the rebaling or repacking of the goods in 
any way. 

Many of our customers would request part ship- 
ments of the merchandise, which was- out of the 
question. We have, therefore, been compelled to 
ship these goods from New York to the British West 
Indies. , There we have the goods repacked, and 
shipped thence to South and Central America, with 
the permission of the customshouse. 

Commissioner Kent. In other words, you have to 
act as if Jamaica was your final shipping point. You 
have to have another transshipment point besides 
New York? 

Mr. Reis. Exactly. At the present time we have 
to hold all goods in bond which we can not dispose 
of at the present time, as the goods are not packed 
right. We are very much of the opinion that some 
practical change such as you suggest should be made, 
eliminating the red tape, whereby we could reship 
some of this merchandise. 

A good many of our customers are purchasing our 
own goods through England, not coming here because 
the goods are not packed in the. proper way. 

Commissioner Kent. Would you have to put up 
special buildings for this repacking? 

Mi-. Reis. J would suggest the free zone. We 
could possibly carry our goods into the free-port 
warehouses, and there repack any "part of the goods 
as the customer desired. We could then take them 
out without paying duty. 

Commissioner Kent. In connection with your 
business, do any of the lines of clothing manufactured 
in this country use your goods ? 

Mr. Reis. Lots of it. 

Commissioner Kent. Then, in that connection, 3 r ou 
probably have to go through the drawback system ? 

Mr. Reis. There is too much trouble about the 
drawback system to use it. We are not manufacturers 
of the goods on which our goods are used. 

Commissioner Kent. If you sell your lace to clothing 
manufacturers in New York and they export those 
goods, who gets the drawback? 

Mr. Reis. The manufacturer gets the drawback, 
if the goods could be identified as having been im- 
ported into this country on a certain date, on a certain 
invoice, that would be all right, but there is a great 
deal of trouble in that, as we might resell the manu- 
facturers in New York. The goods might come in 
kali' a dozen different shipments, which must be 
identified in order to get the benefit of the drawback. 

Commissioner Kent. So that through the necessity 
of identification there are a lot of drawback losses ? 



Mi-. Reis. Yes. 

Commissioner Kent. Then, there is considerable 
difficulty in collecting the drawback? 

Mr. Reis. Considerable difficulty. 

Commissioner Kent. How about time ? 

Mr. Reis. Lots of loss of time. Many manufac- 
turers prefer to lose the drawback rather than be held 
up by the present system. 

Commissioner Kent. A free-zone system would do 
away with all that ? 

Mr. Reis. Yes. 

Commissioner Kent. It has been suggested that 
one of the advantages of the free zone would be a 
permanent exhibit. 

Mr. Reis. We would prefer to get samples of goods 
going into the free zone to show as samples. 

Commissioner Kent. Do } t ou have difficulty in the 
matter of having an exhibit now ? 

Mr. Reis. No? Sometimes you get the samples 
much ahead of the goods. To-day we have mam- 
goods in bonded warehouses of which we have not 
any samples. 

Commissioner Kent. If you have goods in the 
bonded warehouses and you want to get the samples 
out to show the goods around, can't you break the 
package ? 

Mr. Reis. No; except under supervision. It would 
be impossible to get the customers there. We tried 
it once. It did not work. The goods are mixed with 
coffee, tea, and something else of that kind, and they 

do not show off to advantage. 

* * * * * * 

Mr. Samuel Uleman, chairman of the Board of Trade 
of the Fur Industry, New York City. 

I would like to be recorded as representing the fur 
industry and Board of Trade of the Fur Industry of 
the City of New York as being strongly in favor of the 
adoption of a free-zone system. You must realize 
that we are handicapped, and that this country has 
never awakened to the idea of a free port and free 
zone. We have never taken any real steps to accom- 
plish anything. We have done all our work through 
the bonded warehouses. 

Now, we can not compete with foreign countries: 
we can not compete successfully and hold the large 
amount of trade and finance which has come to us, 
due to the closing of the arteries of commerce by 
reason of the war, unless we are in position to sell what 
we have to sell. We must be in position to bring 
their products to this country and be free from moles- 
tation of customhouse regulations. 

I understand some of the gentlemen here advocated 
the enlargement of the b uided warehouse for that 
purpose. That will not work. That will not accom- 
plish the purpose. 

You are, of course, undoubtedly well aware of what 
has been accomplished in Europe by the free ports 
established over there: and you are undoubtedly 
pretty cognizant of the fact that the free port of 
Hamburg has been practically the instrumentality 
with which Germany lias created its world-wide com- 
merce and has been able to control it. 

The goods could be unloaded in a free port. You 
can grade and assort them and you can then deliver 
to the United States manufacturer what goods he 
desires. 

That can not be done in this country or any other 
country where the customs is unless you have a free 



FREE ZONES IN PORTS OF THE UNITED STATES. 



57 



port where the goods can be handled and repacked 
and shipped without the red tape of customs super- 
vision. That can not be done unless we are to have 
those advantages. Unless we are to have those ad- 
vantages. I do not see how we can expect to main- 
tain to any degree at all the foreign commerce which 
has come to us, largely because they could not buy 
the goods in the countries where they formerly traded. 

The moment the war ceases and transportation 
becomes restored, you must see that unless we are in 
position to compete, we will not hold our gain which 
has come to us. 

I hope the Government will see the advantage of 
the free zone. I think it is for the Nation to consider 
that it is of the utmost importance for the future wel- 
fare of this countrv that some action be taken. 



Extracts from Report of Hearing Held by the United 
States Tariff Commission in the Rooms of the Board 
of Trade, Bourse Building, Philadelphia, Pa., Janu- 
ary 22 and 23, 1918. 

^c sj: . % * *-. * 

Hon. Thomas B. Smith, mayor of the. city of Phila- 
delphia : 

The establishment of a free port means the setting- 
aside and segregating of a large area of land either in 
or adjacent to the city, where imported goods intended 
for export may be received, stored, repacked, sorted, 
and blended, or manufactured and exported without 
the payment of tariff and with the avoidance of the 
cumbersome delays now prevalent, due to the present 
system of drawbacks. 

The question of the freedom of the port, as I under- 
stand it, is altogether independent of the protection 
or free trade policies which begin outside of the free 
port and end at its gates, but that its purpose is to 
encourage and facilitate the handling of cargoes 
intended for reshipment or for distribution to other 
countries. 

It is claimed that free ports established in other 
countries have had a remarkable effect in the develop- 
ment of commerce, and it is urged that the establish- 
ment of free ports in this country would tend to the 
same end. If, after hearing the views of our citizens, 
you agree that the creation of a free port would im- 
prove the industrial and commercial facilities for mak- 
ing and handling products and increase the great over- 
sea traffic of the country, it will then be necessary 
that cites be selected for the establishment of such 
free ports, and it is natural that the selection should 
be from those ports which lend themselves to the suc- 
cess of the project. 

A free port can not be authorized and made suc- 
cessful if it is set down in a location lacking in the 
very essentials of the idea. You must place it within 
an established port where the foreign trade is already a 
dominant factor; where the harbor facilities are mod- 
ern and ample ; where the transportation facilities are 
far-reaching and satisfactory; and where the sur- 
rounding territory is con tributary in resources, indus- 
trial capacity, and population. You can not estab- 
lish a free port on a small stream lacking trade and 
facilities and without a nearby country of produc- 
tiveness and hope to build up a great commercial 
port. 

* * * * * * 



In the event of a free port being authorized for the 
city of Philadelphia, I am assured by the director of 
the department of wharves, docks, and ferries that 
his department is vested with ample authority to put 
the idea into effect, for under the act creating this 
department the director is authorized to construct 
such improvements as may be necessary. 

I wish to assure you that this city stands ready to 
take a foremost part in any plan which will aid in 
increasing the commerce of the port and advancing 
its interest. 

****** 

Commissioner Kent. Gentlemen, there is really no 
use in my making any long introductory statement. I 
think jow all know what a free zone is, and I very 
much prefer the words "free zone" to the words "free 
port," because "free port" may carry with it the 
idea of a free city. You all know the physical re- 
quirements of a free zone; the necessary isolation, the 
necessary transportation facilities by land and water, 
and the necessary equipment. 

This question, as far as the Tariff Commission is 
concerned, is the broadest kind of a national issue. 
We believe that at the close of this war, for many 
reasons this country will more and more look to for- 
eign trade, and with greater justification. We have 
become a great creditor nation, and our debtors can 
not pay us in money; they will be obliged to pay us 
in goods. That of itself will develop interchange of 
goods and foreign commerce. We shall find our- 
selves at the end of this war with a large mercantile 
marine, which necessarily will tend not only to need 
business, but to make business. And the free zone 
is a mechanical device for facilitating trade. It has 
nothing whatever to do, as you all understand of 
course, with any policy of free trade, protection, tariffs 
for revenue, or any other fiscal policy of the Govern- 
ment. If the free-zone system is good for anything 
at all it is valuable as a mechanical device for expe- 
diting traffic, for preventing demurrage of vessels, 
which amounts to a tremendous expense, and demur- 
rage of cargo in foreign trade. 

If we are to go on with the idea of a vast increase in 
foreign trade which we have a reason to expect, I think 
we shall find on investigation that our existing port 
facilities are either inadequate or partially obsolete, 
or both. 

The free-zone idea necessarily carries with it in most 
cases the idea of new construction, and new construc- 
tion must also take into consideration the most mod- 
ern methods of handling cargo and storing goods, the 
manufacturing of goods and the mixing and blending 
of goods. 

I do not personally believe that the harbor facilities 
in the places that I have visited thus far are adequate, 
and the free zone, possibly necessitating a new con- 
struction, will carry with it as a necessary context the 
most modern methods and the most modern treatment. 

The question that we are here to discuss with you, 
and to get your views upon, is whether, in your opin- 
ion, the present laws that surround bonded ware- 
houses and the drawback system may be so altered 
and amended as to encourage a freer handling of cargo 
destined for export; or whether there is also needed a 
free-zone policy to be granted to those localities the 
commerce of which suffices and whose merchants be- 
lieve that the benefits to accrue will justify a large 
local investment. 



58 



FBEE ZONES IN POETS OF THE UNITED STATES. 



Mr. J. S. W. Holton, president Maritime Exchange, 
Philadelphia, Pa.: 

3j» !|C !J9 5f! Sj» t* 

I realize that if the Federal Government were to 
undertake to establish free ports throughout the 
country, and to hand them to various districts, there 
would be a free port in every river and creek in the 
country, and that it after all does come back to the 
section that considers itself industrially strong enough 
or knows itself to be industrially ambitious enough 
to establish its right to a free zone, provided it 
should be determined as a result of the investigation 
by this honorable commission that a free-zone system 
for the United States would be a national asset and 
be an important factor in meeting the opportunities 
of world-wide trade that are sure to come to the 
United States as a result of this war in a magnitude 
beyond the vision of any man who sits here at the 
moment. 

% % % %: % $: 

Because it has been shown that the free-zone system 
has been an advantage to all communities where it has 
been put in practice, we incline to the belief, reserving 
the right to change our opinion if the facts justify it, 
that the establishment of free zones in the United 
States would be a valuable adjunct to the fiscal reforms 
that must be necessary to place the United States in a 
position to take advantage of these opportunities to 
which I have referred. 

While I assume that it is not within the scope of the 
commission's inquiries to consider any question with 
regard to merchant marine, before taking my seat I 
want to call your attention to the fact that the build- 
ing, maintenance, and operation of a merchant 
marine in such proportions as will restore the United 
States of America to the place which she formerly held 
as a maritime power in the world is indispensable to 
the utilization of a free zone or any other system of 
tariff privilege or accommodation; it is indispensable 
to the utilization of those opportunities to the extent 
that would at all make them justifiable. 



* * 



Dr. Emory R. Johnson, transportation expert, Uni- 
versity of Pennsylvania: * * * I take it that the 
primary purpose of a free zone is to provide a con- 
venient and economical emporium for trade. Now, 
the United States as a manufacturing and exporting 
and importing nation in the past and up to the present 
has not been a large trade emporium in the sense that 
London has or in a minor degree Hamburg or Rotter- 
dam. If we are to establish a free port or a free zone 
at our most important ports, it will be for the purpose 
of facilitating first of all the large transfer of traffic in 
those free zones. If that be our purpose, then we 
should inquire whether there is a prospect of our be- 
coming in this country a trade emporium as London 
and Hamburg and other continental cities have become. 
Of course, I can not attempt to answer that question 
except in so far as certain facts may give indications 
of what the answer would be. 

I had occasion some years ago to make a study of the 
organization of the administration of the ports of Lon- 
don, Hamburg, Rotterdam, and some other continental 
cities, and then I subsequently was charged with the 
duty of endeavoring to determine to what extent the 
commerce of the world would leave existing routes 
and change to a route through the Panama Canal. In 
connection with that investigation of the probable use 



of the canal I endeavored to find out, among other 
things, how much of the trade that was carried on 
between the Atlantic seaboard of the United States, 
the East Indies, China, Japan, and Australasia might 
be expected to leave the existing routes and use the 
Panama Canal. I found that it was very difficult to 
determine the amount of tonnage first of all of cargo 
that was being shipped from the eastern seaboard of 
the United States to trans-Pacific countries for the 
reason that a large part of that trade left the country 
for London and Hamburg and other trade emporia in 
Europe and was there transshipped, becoming prac- 
tically incorporated in the trade of Europe, and lost 
to the trade of the United States. The best we could 
do statistically was to form an intelligent estimate as 
to the trade between the eastern seaboard of the United 
States and the countries beyond the Suez Canal. 

Now, that merely is an illustration of the fact that 
up to the present war the United States has been 
trading to a considerable extent with other parts of 
the world by way of London and Hamburg and, in a 
minor degree with continental cities. Is that to con- 
tinue after this war is over, and for our particular pur- 
pose is it to be expected that the establishment of free 
zones in New York and Philadelphia and New 
Orleans — speaking only of the Atlantic and Gulf sea- 
boards—would tend to change our use of the commerce 
emporia of Europe and make our trade with foreign 
countries a direct one and possibly turn the tide and 
cause European trade to be handled to a considerable 
extent by way of American ports ? 

Now, we are going to have very much more ship- 
ping in the future than we have had in the past. We 
are going to have a larger trade with South America. 
We are going to have a larger trade with the Orient, 
and we are goingto carry on that trade with the Orient 
by way of the Panama Canal. Can we expect that 
Europe's trade with the Orient would be transferred 
in part at American ports ? The facts to be considered 
in connection with that query are these: Our heaviest 
traffic movement out of the country is to Europe, so 
that we have a large tonnage of snipping moving in 
ballast, or in part cargoes, from Europe to the United 
States. Freight rates in normal times tend to be low 
from Europe to the United States. Our trade to the 
eastern shores of South America has been light out- 
bound and much heavier inbound to this country. If 
we had convenient, economical free. zones for the trans- 
fer of cargoes en route and for the necessary storage 
and classification of goods, I am inclined to think that 
with our larger trade and our increased tonnage on 
the ocean the cheap rates from Europe to the Lnited 
States will bring to this country a considerable tonnage 
of European trade for the Orient. 

Commissioner Kent. I am very much interested in 
this triangular movement. You say that the move- 
ment of trade is very much heavier from this country 
to Europe than it is in the opposite direction ? 

Dr. Johnson. Yes, sir. 

Commissioner Kent. Does that mean that the 
American exports go to Hamburg and from Hamburg 
back to South America in a triangle ? 

Dr. Johnson. Yes; more from London to South 
America. That is due to what I have already said 
and also to the fact that Europe ships largely to South 
America. Trade moved from the United States to 
Europe in large volume and from Europe to South 
America. Vessels tend to pursue that triangular 
route, as you well know. Now, I am wondering 



FREE ZONES IN POETS OF THE UNITED STATES. 



59 



whether conditions are not developing that will change 
that. 

Commissioner Kent. And keep vessels going both 
ways? 

Dr. Johnson. Yes; keep vessels going both ways. 
That is, if Europe can transfer goods economically at 
New York and Philadelphia and New Orleans, goods 
en route to the Orient and goods en route to South 
America, for freight rates to South America are rela- 
tively favorable from the United States. If those con- 
ditions may be protected and we have the free zone at 
our Atlantic and Gulf seaboards, I am inclined to 
think that the former routes of trade might be appre- 
ciably changed. Now, that would have been impos- 
sible as far as the oriental trade is concerned without 
the Panama Canal. The opening of that trade route 
from the United States to the East and the consequent 
establishment of -a considerable number of lines be- 
tween New York and Philadelphia and the Orient by 
the Panama Canal and the economy of that route for 
chartered vessels gives me the grounds for thinking it 

Srobable that New York and Philadelphia and New 
•rleans might become important trade emporia for 
the commerce of Europe, both with the Orient and 
with South America. 

Now, you have come, as Mr. Holton warned you, 
to the stronghold of protective tariff where the word 
"free" is somewhat disconcerting. Personally, that 
does not alarm me. I think it entirely clear that the 
establishment of a free zone, even in Pennsylvania, 
would in no wise militate against the maintenance of 
a protective-tariff system such as this community 
might care to see maintained. 

As to the possibility of our developing trade em- 
poria — — 

Commissioner Costigan. Dr. Johnson, you speak of 
trade emporia. Do you mean in the sense of points 
of transshipment? 

Dr. Johnson. Yes. Perhaps I do not use the word 
accurately, but I am thinking of London as a great 
emporium into which goods come from all parts of the 
world and from which they are taken. The question 
you have raised, Mr Commissioner, is the question 
whether with our existing bonded warehouse system 
we can look forward to a barge transfer of trade. Per- 
sonally I do not think so. I think the expense and 
delay to commerce and to shipping involved in enter- 
ing and clearing and going through the formalities and 
suffering the consequent detention would cause trade 
to be transferred preferably at the ports where that can 
be avoided. 

Commissioner Kent. You think the bonded-ware- 
house system and the drawback system could be 
ameliorated so as to permit the transshipment at 
points to be established here? Is it theoretically 
possible in your opinion ? 

Dr. Johnson. I do not feel that I have sufficient in- 
formation to competently answer that question. But 
the experience I have had in the last few months in 
licensing vessels to take on bunker coal and ship stores 
has given me some insight into the delays incident to 
getting a ship into a port and getting its cargo entered 
and getting its cargo aboard and clear. 

Commissioner Kent. As I understand the coal- 
bunkering plan, a ship leaves New York and goes to 
Norfolk for coal and it has to go through the process 
of clearing again. 

Dr. Johnson. They do during this war period. In 
peace times they have been allowed to enter Norfolk, 



we will say, take on coal and sail in 24 hours without 
entering and clearing at the customshouse. In the 
interest of safeguarding the use of our ports for peace- 
fid purposes for the present that is not possible. 

Commissioner Kent. What is your particular trouble 
concerning ship stores ? You spoke of them. 

Dr. Johnson. I mean that it takes, as a matter of 
fact, in actual practice, several days to go through the 
process of entering and clearing a vessel. The process 
itself involves several days' detention of vessels and 
the detention of shipping is, of course, a very expensive 
matter. It is expensive enough, in my judgment, to 
cause commerce and shipping to prefer ports at which 
that can be avoided. 

Mr. H. K. Mulford, manufacturer of drugs and 
chemicals, Philadelphia, Pa.: 

****** 

Nearly five billions of dollars of merchandise are 
rehandled in foreign trade each year, and in order that 
our merchants and manufacturers may enjoy an equal 
competitive ba«is, we must be placed at least on an 
equally favorable trade basis. Reexport in well-or- 
ganized business must assume an important integral 
portion of our export trade and to foster the ease with 
which this reexport business can be conducted, the 
free movement or transfer in a free zone is essential. 
Therefore what are termed "free ports" or "free 
zones" have been established in Copenhagen, Bremen, 
Hamburg, Trieste. Through these free zones move 
a very considerable proportion of the rehandling or 
reshipments of raw materials. 

The full advantage of these free zones can be 
obtained only where the country immediately con- 
tributory thereto is rich in facilities for manufacture 
and where the products obtained abroad may either be 
collected for distribution in foreign trade or may with 
proper safeguards be distributed to the manufacturer. 
We have lost our advantages of being a carrier nation 
through our loss of shipping, but now with the enor- 
mous increase of government-built merchant ships, we 
will soon be in a position, we hope, to have as large, if 
not the largest number of cargo carriers of any nation 
in the world. To enjoy fully the fruits of a large mer- 
chant marine our export business should in every way 
be encouraged by our National Government. * * * 

The special advantages of a free zone are: 

First. Unloading and loading of cargoes would be 
facilitated, as the necessary time consumed in exami- 
nation, levying or assessing and collection of duties 
would be avoided. 

Second. It would stimulate the number of ships, as 
the time saved in unloading and loading would 
materially shorten the length of time ships would be 
required in port and so increase their productive 
capacity. 

Third. Storage would be quickened and made easier, 
since the cargoes could be unloaded directly from ship 
to the warehouse. 

Fourth. Capital would be more actively engaged — 
i. e., be more liquid — because large sums would not be 
locked up in payment of duties and port charges and 
a large volume of business could be carried on with the 
same amount of invested capital. 

Fifth. Commerce would be stimulated because a 
free zone would induce larger direct cargoes to our 
American ports that now go abroad and from thence 
be transshipped. 



60 



FREE ZONES IN PORTS OF THE UNITED STATES. 



Sixth. It would be possible to make up for reexport 
what may be termed "blended" or mixed shipments. 

Seventh. Exporters could carry consignment stocks 
without paying the duty, and the duty need only be 
paid when actually admitted or cleared — i.e., imported 
into the country. 

Eighth. The more rapid and cheaper distribution of 
merchandise is effected into our own country or into 
other countries, the greater the market is built up for 
redistributing the goods in export from the United 
States. 

Ninth. Freer movement of merchandise would 
increase our shipping and make for increasing full 
cargoes to be carried in inbound as well as outbound 
shipments. 

Tenth. It must necessarily develop our ports and 
add to our commercial prosperity. 

Eleventh. The facilities of rail connections, ware- 
houses and, above all, the building of factories in the 
free port or free zone must materially lessen time of 
delivery of merchandise and be of material advantage 
to the country at large. 

Twelfth. The most important reason in my judg- 
ment for the establishment of the free zone is in saving 
needless expenses, lessening the cost of carrying on an 
export business and, above all, save the expenses now 
necessarily incurred by the cumbersome drawback 
system. 

While the system of drawbacks under which we are 
now favored is an incentive to the manufacturer to 
export his products, the necessary "red tape" — and I 
do not speak disparagingly of this — locks up for a" 
long time, frequently 10 or 12 months, capital that 
would be profitably engaged in actual business trans- 
actions. The expense now involved in securing 
drawbacks represents a considerable amount of profit, 
and the saving would enable the American exporter or 
manufacturer to secure more favorable returns from 
his business endeavors. 

The free zone simplifies and makes it easier for the 
merchant to conduct his business, will develop our 
industries and add to the general prosperity of the 
Nation. 

#**.*■*.* 

Commissioner Kent. Is it your opinion that the 
drawback system is necessarily and inherently cum- 
bersome 1 

Mr. Mulford. It certainly is and I want to speak of 
that. 

Commissioner Kent. The reason I speak of that is 
that in the questionnaires we have sent out we have 
had a number of replies to the effect that the trouble 
with the drawback system was in the men who 
rendered the service; that it might be shortened. 
Now, we want to know just what happens. 

Mr. Mulford. That is what I am trying to bring 
out. What is necessary now in order to secure a 
drawback? First, you must apply for a Treasury 
decision so you may be allowed to make a claim for 
drawback. That means inspectors coming to your 

Elant to see if you are hitched to do that kind of 
usiness. In other words, they are going to judge 
whether you shall or shall not engage in export trade. 
Second, you give notice of your intention, which notice 
must accompany the shipment to the pier. Third, 
you give a copy of your bill of lading or customhouse 
copy, which must be signed by the steamship com- 
pany showing the goods that were actually cleared. 



That is very necessary. Then you make out your 
schedule and then this goes through the routing office 
in New York, which either approves or disapproves 
payment of the drawback and figures the amount to 
be paid. Any slight deviation that may be made in 
your invoice or in your claim for drawback may be 
sufficient to throw out your claim, and when you have 
quoted a price figured on securing a drawback so that 
you can compete with your foreign competitor, he has 
an advantage of the free zone. If you have made a 
slip you are penalized and you lose your profit and 
you do business at a loss instead of a profit. 

What we complain about most seriously, however, is 
that after you do have your claim entered properly 
and it has been properly viseed and passed on by the 
Treasury Department, there is delay in getting your 
money. It is not infrequent for from 6 to 10 months 
to be consumed before the drawback reaches the man 
who is entitled to it. That is an absolute injustice. 
The loss of that amount of capital makes it impossible 
for any except large firms to compete in export trade, 
and the very man you want to help, the smaller manu- 
facturer, is precluded from doing business. We hope 
the small manufacturer under the new change of our 
law is going to be able to combine for export trade. 
What we would like to see done, gentlemen, so far as 
the drawback system is concerned, and we can not get 
the free zone, is to cut out the technicality in settle- 
ment after the claims have been liquidated. In other 
words, let the Treasury Department return promptly 
the money which the exporter is entitled to receive. 

Now, what I am claiming is this, gentlemen of the 
commission; that any law or any form of procedure 
that makes it necessary for a business man to secure 
expert advice in order to get his own money back is 
wrong and ought to be repealed or modified. It is 
to be understood that the statements made by me con- 
cerning the time required in securing moneys from 
drawbacks apply particularly to the alcohol which is 
used as a solvent in the manufacture of drugs, pharma- 
ceuticals, and chemicals. * * * 

Mr. W. O. Hempstead, of O. G. Hempstead & Son, 
customs brokers, Philadelphia, Pa. : 

***** 

My understanding of a free port is a combination 
of warehouses and plants for the manufacture of mer- 
chandise from imported and domestic materials. 
The former would be in demand for storage purposes, 
for no other reason than the matter of storages, which 
undoubtedly would be in favor of importers over the 
rates charged for similar service by warehousemen 
located in heavily congested parts of large cities; while 
the latter would offer very cheap acreages for the 
establishment of manufacturing plants that desire to 
manufacture merchandise partly from domestic and 
partly from imported materials, for either foreign or 
home trades. 

Commissioner Kent. You consider the manufactur- 
ing part of a free port as very important, do you ? 

Mr. Hempstead. For new lines of business depend- 
ing on foreign trade, I think the newly established firms 
will seek the acreage offered by the free zone to put up 
their plants. You could not expect manufacturers 
that are exporting goods to-day with the benefit of' 
drawbacks to move their plants or to build new 
plants where they have them, because the present 



FREE ZONES IN PORTS OF THE UNITED STATES. 



61 



drawback law allows the return of 99 per cent of the 
duty paid on the imported article. 

Commissioner Costigan. There would be no par- 
ticular manufacturing for domestic consumption, 
would there, in your free port? I mean under a 
system of protective tariff duty. 

Mr. Hempstead. I am not so clear on that. I think 
you would find factories locating in the free zone. 
They should not be excluded, in my judgment. I 
looked at it from the angle that the factories could 
be located in a free zone with ample railroad facili- 
ties and connections as cheaply as in an}- other part 
of the surrounding city. I am speaking now from the 
Philadelphia standpoint. 

Commissioner Kent. Would they go there with the 
idea of manufacturing for customs territory ? 

Mr. Hempstead. Not unless they were interested in 
the manufacture of goods with the benefit of the 
drawback. 

Commissioner Costigan. It would be for foreign 
trade? 

Mr. Hempstead. It would be for foreign trade, but 
coupled with that some firms would make withdraw- 
als of goods manufactured there for home consump- 
tion and pay the duties. I have recommendations on 
that point which I want the commission to take notice 

f\T -T- -I- -f* 

In connection with the establishment of free ports, 
I desire to suggest to your commission that you rec- 
ommend to Congress, in case it should pass a law 
authorizing free ports — 

First. All merchandise deposited in free-port ware- 
houses should be accorded the same rights as if just 
landed from a foreign steamer. 

Second. It be optional with the importer to either 
make what is known as a consumption entry at the 
customhouse, or to be allowed to forward his mer- 
chandise in bond under the provision of the immediate- 
transportation act to any interior customhouse. 

Third. That the date to be fixed for valuation and 
classification purposes should be the date the importer 
apples to the collector of customs in whose district 
the free port is located for his property, whether for 
consumption or immediate transportation without 
appraisement. 

Fourth. That the importer be relieved from furnish- 
ing a consular invoice for all or any portion of an 
importation that has taken advantage of the free-port 
privileges. 

In connection with your drawback interrogatories 
I can only say, as far as my own experience is con- 
cerned, that I do not consider there is any cause for 
change or modification in our present drawback sys- 
tem, except in one particular. I wish your commis- 
sion in dealing with the question would recommend 
to Congress to do away with the production of certifi- 
cates of landing at foreign ports from United States 
consuls. 

I would further ask that your commission recom- 
mend to Congress the 30-day feature in the drawback 
law be eliminated and authority be given to collectors 
of customs to make payment of drawback moneys 
upon the final completion of drawback entries by the 
exporter and the return by the custom inspector that 
he has personally inspected the loading in the out- 
going vessel of all the merchandise covered by the 
drawback entry. * * * 

Mr. Mulford. Mr. Chairman, Mr. Hempstead said 
he differed from me in one particular about asking 



for a change in the drawback system. Do you make 
a claim, Mr. Hempstead, for drawback on goods which 
you manufacture yourself ? 

Mr. Hempstead. No, sir. 

Mr. Mulford. You act as an agent ? 

Mr. Hempstead. Yes, sir. 

Mr. Mulford. Then, I say, Mr. Chairman, that his 
objection comes from a different viewpoint. The sys- 
tem, as he works it out, now givos him business. As 
it works out with us, a commission has to be paid by 
a man to get his own money back. That is why we 
differ. 

Mr. Hempstead. I take exception to the remark 
that it is necessary for any manufacturer to employ 
an agent to recover his drawback for him. He selects 
cme merely for his own convenience; that is all; and 
the one whom he selects makes a charge. But at the 
outset I understood the gentleman to say that it was 
necessary to have an application made to the Secre- 
tary of the Treasury for permission to export goods 
for the benefit of drawback. The regulations are like 
this : You form an idea of selling goods abroad made 
partially of imported material. You may arrange 
your steamship matters and are going to ship next 
week. You may file with the collector of customs a 
preliminary notice to this effect and ask the collector 
to make due examination. You also write to the 
Secretary of the Treasury asking the Secretary to 
make an examination through his various channels 
for the purpose of fixing a drawback rating. Now, 
when that drawback rating is established and ship- 
ments are made and the exporters have their papers 
in thorough condition, there is no need to wait six 
months or eight months or nine months for the col- 
lection of the drawback. Especially has that been so 
since the beginning of the war. Prior to that, owing 
to a great congestion of business, perhaps, it was two 
or three months in some instances where the draw- 
back duties were delayed in the payment. And you 
see I make the suggestion here of doing away with the 
first 30 days. No one can collect a penny of draw- 
back until after the first 30 days as the law now stands. 
But there is no reason why it could not be paid to-day, 
just as soon as you get your papers in shape and the 
customhouse officer says he has seen those goods put 
in the hold of the vessel. 

Mr. Mulford. My good friend is probably speaking 
of general merchandise. I am speaking of specific 
merchandise or goods with which we deal in our 
business, such as alcohol. We are collecting, now, 
drawbacks for 1916 shipments, and I defy anyone to 
get what is coining to him if he does not emplo3 T the 
services of some one who is skilled in getting these 
drawbacks. I think you will find that we have as 
competent brains as are to be found in ordinary 
establishments, and I must confess that we have not 
been able to do it, and we have tried. 

* * * * * * 

Mr. E. J. La vino, importer of ores, Philadelphia, Pa. 

The average cost for collecting the drawback, 
taking all the merchandise exported for the benefit of 
the drawback into consideration, is not 5 per cent. 
It perhaps does not average 3 per cent. That is 
largely reduced by such commodities as sugar and in 
prewar times tin plate. 

Commissioner Kent. What would be the average 
outside of sugar ? 

Mr. Lavino. Outside of oil and sugar it would not 
be 10 per cent. 



62 



FREE ZONES IN PORTS OP THE UNITED STATES. 



Mr. Harry B. French, of Smith, Kline & French, 
manufacturers of drugs and chemicals, Philadelphia, 
Pa.: 

The Chairman, I am here representing the drug ex- 
change. I would like to know whether this is a dis- 
cussion of the general fiscal policy of the Government 
or a discussion in regard to the establishment of free 
zones. 

Commissioner Kent. It is a discussion, Mr. French, 
not of the general fiscal policy of the Government, but 
a discussion of the necessary routine of the export busi- 
ness, and whether that routine would be simplified by 
a free zone and whether the routine of drawbacks and 
bonded warehouses could be beneficially simplified. 
It concerns the mechanical means of expediting 
foreign trade. 

Mr. French. There are so many experts here in 
the intricacies of exporting and importing under the 
present circumstances that I can not add anything to 
the subject, except one remark that is called for by 
listening to the discussion that has gone on. 

Mr. Hempstead is our broker, but when it comes to 
recovering money from the Government it is a hold- 
up. I want to say emphatically that when we try to 
get money out of the Government I have never known 
that we have done it for less than 50 per cent of the 
amount recovered. Again and again I have remon- 
strated, but without success. 

I am here merely presenting facts to you for your 
future consideration. My impression was that this 
was solely a meeting for the discussion of the estab- 
lishment of free zones. I understand now that is 
only a part of the discussion as to the methods to 
increase the facilities for import and export; but I 
would like to say just a few words on this subject. 

* * * We merchants in Philadelphia can buy to 
better advantage goods in Africa and ship from 
Europe than we can direct. Therefore, in any dis- 
cussion of a free zone you must bear in mind that a 
free zone on the basis of the free zone of Hamburg is 
only efficacious when backed by governmental action 
in the way of a supply of a merchant marine power to 
stimulate the operations of this country. Otherwise 
the operation of a free zone on an important basis, I 
respectfully submit, is of very small advantage. 

One way of looking at the free zone is a little affair 
where there is a small area established, possibly two 
bonded warehouses, where people are permitted to 
export goods without examination, and perhaps under 
certain conditions take goods out of this country into 
those bonded warehouses and mix them up and ship 
them. 

The other advantage is a so-called advantage of 
which Mr. Mulford, whom I regard as an expert in 
that particular, may have spoken to you. It is the 
export of our own products. Everybody who tries to 
export products partially made with imported goods 
knows the practically insurmountable difficulties. 
Every man who does that is naturally looked upon 
by the customs officials of America as a rascal who is 
trying to cheat the Government. The process of 
exporting is very difficult. I tried it one time, and if 
I did it I would have to give the history of the pro- 
duction of that product from its inception. What 
business of the customhouse official is that? They 
wanted to know its history and its grandfather — every- 
thing about it. 

Now, there is a greater advantage in the establish- 
ment of a free zone. In the establishment of a free 



zone, which implies a segregation of thousands of acres 
of land approached by waterways and shut off from 
all communication with the rest of the world, sur- 
rounded, like Hamburg, with a high iron fence, where 
water power can be obtained cheaply and where vast 
manufacturing establishments can be set up. If you 
correct the difficulties of exporting goods containing 
foreign products, you really have no excuse for a free 
zone, because you have everything that you can get 
except this latter possibility, but that latter possibility 
opens indefinite future possibilities. 

I know of a manufacturing pharmaceutical house 
that has establishments, not only a vast one here, but 
one in Canada, one in Hamburg, one in Melbourne, 
one in England, and others in various other countries 
of the world. It is easily conceivable that houses like 
that, if they could establish a manufacturing plant 
in a free zone, such as here mentioned, would concen- 
trate their manufacturing there, because it would be 
cheaper for them to manufacture their product in one 
establishment under such curcumstances than it would 
be to establish ail these various independent manufac- 
turing plants. 

Gentlemen, in closing I would urge one thing, and 
that is that if any free zone is given and attached to 
the municipality it be done at the cost of that munici- 
pality. Otherwise, you open a pork barrel of in- 
definite dimensions. You will have exactly the same 
conditions as prevailed in the rivers and harbors 
bill. 



Mr. Philip Godley, Godley Stores, Bonded Ware- 
houses, Philadelphia, Pa.: 

****** 

Commissioner Costigan: Mr. Godley, as a ware- 
houseman do you see any danger that free ports will 
impair your existing investments? 

Mr. Godley. No, sir; I do not see any serious danger 
of that. As I said, I think there is bound to be suffi- 
cient local business within the confines of the city 
district itself, bearing in mind that any such facilities 
for a free port have got to be some distance from the 
city limits, which, of course, should be closely con- 
nected up with the best of transportation facilities, 
and any free port should be a practical railroad 
terminal as well as a wharf and dock terminal for the 
ships. 

Commissioner Costigan : So on the whole you look 
with favor on the establishment of free ports ? 

Mr. Godley: Yes, sir; as a general proposition I 
think it would be a good thing, at least for Congress 
to give the people the privilege and the opportunity 
to avail themselves of the chance of establishing free 
ports, if the merchants of a locality like Phdadebphia, 
for instance, should conceive that they could build up 
a business sufficiently large for their making the invest- 
ment. I should oppose strongly the Federal Govern- 
ment making any appropriations for the establish- 
ment for any section of the country. I think that 
would be a vast mistake. It should be done by the 
State or the municipality, or the two together, if 
private capital does not feel sufficiently encouraged 
to make the investment. 

****** 

Mr. Emil P. Albrecht, president Philadelphia 



Bourse, Philadelphia, Pa.: 



FBM ZONES IN PORTS OF THE UNITED STATES. 



63 



I believe most firmly in the advantages to be derived 
from the establishment of free zones in our ports for the 
upbuilding of the foreign trade of our country in the 
years to come following tho present war. 

It means that that tonnage must be utilized in the 
foreign trade after the war and incidentally some 
method must be found whereby that tonnage can be 
utilized on a parity with the tonnage of other nations 
which are being operated at much lower costs and it 
is true without the same advantages to their seamen 
that we have under the American nag. 

* * * If we have the facilities for properly and 
expeditiously handling them there is no reason why 
the vast quantities of raw materials which heretofore 
have gone to ports of Germany and England to be 
transshipped in part to the United States should not 
come directly to us and we then serve Europe with 
that portion which we do not require. 

Mr. L. G. Graff, president, Commercial Exchange, 
Philadelphia, Pa. 

Mr. Chairman, I have verv little testimony to give. 
Representing the Commercial Exchange, I might state 
that the grain and flour are produced in such quan- 
tities in the United States that we become the handlers 
of an export commodity. We, however, are indi- 
rectly and vitally interested in getting as much 
tonnage to the port of Philadelphia as we can possibly 
obtain. We are also interested in keeping liquid the 
inbound tonnage as well as the outbound tonnage. 
If the vessels in unloading their inbound cargoes can 
do so quickly it will help us to get vessels to this port. 
I believe that the proposed zone will expedite both 
the loading and the unloading of outbound vessels. 

Commissioner Kent. You would expect to take 
domestic outgoing cargo and put it in the free zone 
where it would meet vessels that come in and unload 
quickly their imported stuff and then ship out on 
them? 

Mr. Graff. We would expect to export grain and 
flour produced in the United States naturally on the 
vessels bringing in the cargo for the free zone. It 
might be necessary, and undoubtedly would be 
necessary in most cases, to move the vessel, but that 
would be a small matter. Grain must be loaded 
where the elevators are constructed or else floated to 
the regular line boats. If the inbound cargo at our 
free zone happened to be a line boat and could not be 
moved to the elevator, the grain could be floated to 
that vessel while she is unloading. 

Commissioner Kent. Would you not anticipate 
putting up an elevator in the free zone ? 

Mr. Graff. That is a thought that had not occurred 
to me, Mr. Chairman. The railroads might see fit to 
do so, or the Government. 

Commissioner Kent. Or the free-zone authorities. 

Mr. Graff. Or the free zone authorities; yes, sir. 
I hardly know of anything else that I can give you 
from the standpoint of grain and flour. 

Commissioner Kent. Your general plea for free 
zone ideas would be one of generally expediting 
commerce ? 

Mr. Graff. Yes, sir; expediting and bringing addi- 
tional tonnage to the port of Philadelphia. 

Commissioner Kent. And you think the free zone 
would tend to bring the commerce here ? 

Mr. Graff. I believe it would, undoubtedly. 

Commissioner Kent. If you could do away with 
demurrage you would, in your opinion, get two advan- 



tages; increase of efficiency in expediting vessels and 
such facilities that would tend to bring more vessels ? 
Mr. Graff. Yes, sir. 

****** 

Mr. Albrecht. Mr. Chairman, may I ask a ques- 
tion with regard to bonded warehouses? Is it not 
true that we have at present in certain industries, 
like the cigar industry at Tampa, a number of bonded 
warehouses where manufacturing is carried on with 
success, and where the policing must be done by 
means of one or more inspectors or watchmen to pro- 
vide for that ? 

Commissioner Kent. Yes; we have it in cigars, 
Mexican peas, and smelter output. 

Mr. Albrecht. And we have bonded distillers, 
have we not ? 

Commissioner Kent. No; that is under the bonded 
warehouse law. 

Mr. Taylor, just before you came in we were taking 
up the question of exclusion of non-German shipping 
from Hamburg. I have read the Hamburg book 
which I have here and I found a very large percentage 
of English tonnage in Hamburg. We would like to 
know more about the detail of that. Is that the 
customs port of Hamburg or the free zone of Hamburg ? 
Are foreign ships treated alike in both cases ? 

Mr. Fred. W. Taylor, of Philadelphia, Pa. They 
do not allow any regular liner, a line with regular sail- 
ings, from this country to the port of Hamburg or 
Bremerhaven. It is not possible for any capital to en- 
list boats outside of then control. That is a monopoly 
controlled by the German Government through their 
lines. 

Commissioner Kent. Could an American tramp boat 
go into Hamburg ? 

Mr. Taylor. The tramp boat could go there. They 
use tramps largely. Their lines run between regular 
ports on regular dates. Those boats are not interfered 
with, but any excess cargo of grain from the United 
States to Hamburg or Bremerhaven would be taken 
on a tramp boat of any nationality. But no regular 
boat with sailing dates was advertised to those ports. 
That is the reason why it made such great growth in 
international trade. They had equal rights at South 
Dover with English lines. Then they went on with 
the balance of their German passengers and all of that 
^ was so much to the good. That was one reason why 
they had so much growth in the passenger trade in 
competition. 

I once asked an Englishman in the passenger line 
why they allowed that. He shrugged his shoulders 
and said, "Well, you know it is our English way." 
They went farther down in Trieste, where the Cunard 
Line attempted to open up a traffic between there and 
this country. Tne Germans went so far as to prevent 
that passenger traffic going through Trieste, through 
their political control. 

Commissioner Kent. Through Austria ? 

Mr. Taylor. Yes. They also controlled and domi- 
nated the political policy of the Italians through their 
Sremier. They were studying out this thing with 
rovernment control back of them, and that is the 
entire secret of their great success. 

****** 

Mr. J. S. C. Harvey, representing John R. Evans 
& Co., Philadelphia, Pa.: 



64 



FREE ZONES IN POETS OF THE UNITED STATES. 



It seems to me that considering the free port or 
free zone proposition our first consideration should be 
as to what portion or share of the business of South 
American countries and other countries which are 

very large importers we expect to participate in. 

* * * 

We all realize, I think, that there is to be a grand 
reconstruction, and I think some of our fondest hopes 
probably are hi favor of getting a fair share of business 
that has heretofore gone to Germany. That is true 
in our case. I have not paid so much attention to 
other lines of business. 



Commissioner Kent. The transshipment question is 
the one that has occurred to our commission as really 
the main feature. From all of our hearings we realize 
that the questions of manufacturing is relatively local. 
The questions of transshipment, of expediting the 
movement of vessels, and the movement of cargo, 
seems extremely essential; and the question as to 
whether that could be better done, all things con- 
sidered, by amelioration of the existing system or by 
establishing a free zone system is the important thing. 
We find such a difference of opinion concerning manu- 
facturing that it really can be well cut out of present 
consideration. 

Mi\ Taylor. No regular line will leave its berth to 
discharge in that free zone. You might have certain 
parcels for the free zone. She could not afford to lose 
her sailing date. 

Commissioner Kent. Grace & Co. in San Francisco 
testified that their freight vessels would go direct to 
the free zone. If they had a freight cargo that was 
largely free and partly dutiable, they stated that thej" 
would go right to the free zone. They would have 
their docks there and would make their sailing dates 
there. 

Mr. Taylor. I am speaking now of movements by 
regular lines. Say there is 500 or 1,000 tons by the 
Liverpool line. That boat will go to her own dock 
because she must discharge and get that all out. 
That particular parcel for the free zone would have to 
go by bonded lighter in some form to the free zone. 
The boat itself would not go to the free zone. 

Mi". Harvey. Might not the establishment of the 
free zone change that, Mr. Taylor ? 

Mr. Taylor. Not the regular line. No regular line 
could afford to take the time. 

Mr. Harvey. I mean make only the one stop and 
make that at the free zone. 

Mr. Taylor. They could not do it. That would re- 
quire those goods to be taken out first. 

Commissioner Kent. They take everything out in 
the free zone. 

Mr. Harvey. Could not they discharge out in the 
free zone? 

Mi'. Taylor. Owing to the cost of hauling the regu- 
lar line is going to get as near to the center of industrial 
activity as possible, and for that reason no regular 
line could be depended upon for free zone delivery 
directly. 

Mr. George P. Sproule, secretary to the commis- 
sioners of navigation, Philadelphia, Pa. : 

To any particular locality where the free port or 
free zone may be established it means the taking away 



of nothing that now exists nor will it disturb any of 
the existing conditions. The effect can only be addi- 
tional business. It means that the immense tonnage 
now being built up for our mercantile marine after 
the war will find ready, constant, and profitable em- 
ployment in the foreign trade. It means that our 
merchants having to do with ships and commerce 
will be placed in positions that will enable them to 
extend their business throughout the world. 

In the period antedating the war it was realized 
only too Avell by practical shipping men how little 
money was left here by foreign-owned ships which 
then controlled the foreign trade, our own mercantile 
marine being a negligible quantity. These ships came 
here furnished with supplies taken out of bond in 
Europe, or from the free zones, sufficient for the round 
trip, and not a few of them were even bunkered for 
the return trip. The only necessaries purchased here 
were fresh meats and vegetables. 

With the free port or free zone established, our ship 
chandlers, ship smiths, ship repairers, and in fact all 
mechanics having to do with ships or their cargoes, 
would be placed in a position to secure a great volume 
of business that is now taken to foreign ports by rea- 
son of the inadequacy of our laws. This concrete 
illustration of our present state of helplessness, small 
as it may seem, is only indicative of the principles 
underlying every phase of marine business of Amer- 
ican ports. Among instances too numerous to cite 
in full are those of foreign vessels coming here in 
distress, postponing the making of permanent re- 
pairs until such time as they reach the other side. 
In this way millions of dollars are lost annually to 
the country. 

The free port or free zone system, including within 
its scope shipyards, dry docks, and repair shops pro- 
vided with the necessary duty-free accessories, would 
remedy this condition and give constant and profitable 
employment to our mechanics and other tradesmen. 
The trade that would be built up between the United 
States and South America would result in inestimable 
benefit to our country. 

Merchants with large amounts of capital tied up in 
duties awaiting the adjustment of drawback claims, 
never satisfactory and often attended with legal 
formalities, requiring the expenditure of from 30 to 
50 per cent of the duties originally paid, could utilize 
this capital in the branching out of business. 

The benefits such as accrued in the ports of Europe, 
where the free port or free zone has been established, 
would likewise follow here, and our commerce, ap- 
proximating some 20,000,000 gross tons per annum, 
would soon be doubled. 

* * * * * * 

The director of the department of wharves, docks, 
and ferries, under whose directions these improve- 
ments are being prosecuted, is of the opinion that he 
is clothed with authority under the acts of assembly 
creating his department to acquire property to build, 
equip, and maintain a free port or free zone should 
Congress enact the necessary enabling legislation. No 
city in the world possesses a better or more capable 
body of merchants than Philadelphia, and if Congress 
in its wisdom will give to them this added tool for 
commerce, I predict that the whole nation will be 
benefited. 



FREE ZONES IN PORTS OF THE UNITED STATES. 



65 



Mr. Morris Rosenbaum, private banker, Phila- 
delphia. Pa. : 

Having a free port in which docking facilities and 
warehouses equipped with electric cranes for rapid 
handling of cargoes, both in and out bound, are avail- 
able would enable not only the American merchant 
to make the port a distributing center for products of 
the Far Fast, South America, and parts of continental 
Europe but would also attract the merchant to ware- 
• house in the free port such of his goods as coffee, 
rubber, tea, Chile saltpeter, guano, silk, dyewoods, 
eo:oa, hemp, hides, sugar, etc., until such time as the 
market in one of the other countries will offer advan- 
tages for reexportation. 

The American manufacturer will be in a position to 
have a vast variety and cpiantity of products from 
which to purchase quickly with no delay in delivery. 
This means that the capital employed can be turned 
more frequently, which insures steady employment 
to mechanics and laborers and also quick delivery to 
the oversea trade. 

Cost of construction and land. — Three hundred acres 
of land at S3,000 per acre = $900,000. 

Construction of 5 basins, 1,000 feet wide and 2,000 
feet long, with concrete quays 300 feet wide, covered 
with sheds, equipped with electric hoisting device at 
each 100 feet on both sides; two traveling cranes on 
the ingide and double track railroad in the center. 

One basin, same size as above, similar quay con- 
struction, so arranged that potash, saltpeter, guano, or 
cement may be loaded or unloaded into or from ships 
directly into railway cars standing on tracks alongside 
of the ship. One basin same size as above with quay 
which shall be equipped to handle dyewood, logwood, 
and lumber of general character, to and from the 
vessel into railway cars or lighters. 

One basin, same size as above, with quay which shall 
be equipped to handle lubricating oils, naval stores, 
etc. Depth of basin shall be 35 feet. Belt line rail- 
way to connect three railroads with each quay with 
railroad yard facilities to accommodate 2,000 railway 
cars, all to be handled by electric motive power. Ad- 
ministrative building equipped with most modern office 
and pneumatic transfer devices so as to reach every 
part of quays and warehouses. Cost to be approxi- 
mately $20,000,000. 

Charges. — To cover dredging expenses to maintain 
the basins of the free port deep and clear; all sea ships 
above 1,000 tonnage shall pay 10 cents per net register 
ton except vessels with cargo of bulk goods such as 
coal, cement, etc., or vessels arriving in ballast and 
departing with cargo shall pay only 5 cents per net 
register ton and vessels arriving and departing in 
ballast shall be exempt from tonnage duties. 

Waiehousing charges. — General merchandise, 25 
cents per month or fraction of one month and 10 cents 
for each additional month. Coffee in bags, 10 cents " 
per bag for one month or fraction thereof and 5 cents 
for each additional month. Dye and log woods, $1 
per ton for one month or fraction thereof and 50 cents 
per ton for each additional month. Saltpeter and 
guano in bulk, $1 per ton for first month or fraction 
thereof and 25 cents for each additional month. 

Port expenses. — Covering tonnage dues, towage in 
and out, pilotage in and out, incidental expenses, 
should not exceed 25 cents per net ton. 

****** 

92621—19 5 



Mr. Hempstead. I would like to ask Mr. Rosenbaum 
if he has not misstated the situation regarding the 
make-up of manifests on arriving vessels, assuming 
that we have a free port. He suggested that the mani- 
fest be made out, one portion of the manifest for goods 
intended to be landed in the free zone and one portion 
to be landed at the regular dock. That would be 
quite impossible to my mind. It would compel the 
merchant to decide before his goods were shipped from 
the other side whether he was going to take advantage 
of the free port. 

Commissioner Kent. Would that be much of a 
hardship ? 

Mr. Hempstead. Quite so. I think the merchant 
should have the right to nominate whether he will put 
the goods in free storage after the arrival of the vessel 
and not before it left the free port. 

Mr. Rosenbaum. For the quick handling of cargoes 
it would cause no hardship on any shipper to make 
out his bill of lading on one form or another, but it 
would facilitate the work of the port authorities in the 
handling of goods properly and quickly. He can so 
arrange his cargo that when the snip comes in he can 
discharge either at the city pier or at the free port. 
There would be no hardships on that account. 
* ***** 

Mr. Tucker. I would like to inquire of Mr. Rosen- 
baum if he suggests a charge to be made against ton- 
age arriving for the use of the free zone. 

Mr. Rosenbaum. This has nothing to do with the 
free zone. This is simply an expense to the ship. The 
reason I mention that is this : If a man wishes to ship 
a cargo to the free port of Philadelphia, he should know 
what those charges will be when he charters the ship. 

Mr. Tucker. I thought you were speaking about a 
charge that might be made by the local authorities 
upon a ship in the shape of a tonnage charge. My 
understanding is that that would be out of keeping 
with the provisions of the Constitution; that different 
sections could not make a charge on tonnage. 

Commissioner Kent. The charge and collection of 
tonnage tax upon vessels, as such, is only permitted to 
be made by the Government. No port may levy or 
collect such a tax. It would be an interference with 
commerce and imports. Ports, however, are permitted 
to make charges, based upon the tonnage of vessels, 
for the use by such vessels of the port facilities. Ex- 
cuse me just a moment, Mr. Tucker. I think we can 
fairly assume that the customs port authority is one 
thing, but a free zone in that port is another thing. 
It is practically an extension of the bonded-warehouse 
idea. ■ If there are any discriminations used as between 
charges up to the free zone, I can see where your con- 
stitutional question might come in, but you must con- 
sider the free zone in the nature of an extension of the 
private property of a bonded warehouse. * * * 

Mr. Albrecht. The vessels arriving at the port 
would not be compelled to go to the free zone. They 
would go there voluntarily. And if they go there to 
accept such faculties as may be offered, they are doing^ 
it entirely aside from the port regulations. It would 
not be a charge for their entering and using the port, 
but only for special facilities provided, of which they 
might take advantage or might not. 

Commissioner Kent. Mr. Rosenbaum, there is one 
thought you brought out there that seems to have 
been extremely important in Hamburg and Copen- 
hagen, and that was the greater financial facilities 



66 



FREE ZONES IN PORTS OF THE UNITED STATES. 



offered in the free port than are offered outside. The 
outside business under our warehouse system is more 
scattered. In Copenhagen they insisted upon having 
banking arrangements in the free zone that were su- 
perior to those outside. 

Mr. Rosenbaum. Exactly. Mr. Chairman, I may 
say that there was a great deal of thought given to the 
future of the American commerce. Our banking facil- 
ities, unfortunately, were very, very poor, but they 
have been very much improved within the past few 
years by the establishment of the Federal reserve 
banks. It allowed the American manufacturer to 
compete with the German merchant in South America 
by selling goods under the same terms. It has been 
found that the Federal reserve bank system would not 
suffice for the great commerce of the United States 
which is to come, and preparations have been made to 
meet the difficulties. I am glad to say that one of our 
largest Philadelphia institutions is a member of it. 

The foreign merchant will find that when a free port 
is established in Philadelphia he can send his goods 
over here; he will get his warehouse certificate; he can 
secure some money if he needs any; and he can sell his 
goods to South America or England or Canada. 
* * * 

Mr. N. T. Folwell, importer, exporter, and manu- 
facturer, Philadelphia, Pa.: 

****** 

I would like to indorse the testimony of Mr. Mulford, 
which calls special attention to the inconvenience of 
the present drawback system. That was fully ex- 
plained to you yesterday, and I concur in that ex- 
planation. 

Commissioner Kent. How much do you think that 
could be improved and at the same time protect the 
revenues of the Government ? 

Mr. Folwell. I do not know how you are going to 
improve very much, because the raw materials are 
coming in here free. They have to be watched in 
every process and a full detailed account made of the 
goods that the materials enter into. Then again, there 
are some goods that raw materials would be blended 
with. It would give considerable trouble. That is 
one reason why I think that the drawback system has 
not been utilized like it might have been. 

****** 

While the free port is desirable to manufacture, im- 
port, and assemble goods to export to the countries 
south of us, I consider one of the most important 
questions is the laws relating to our merchant marine. 
This is sort of going a little off from your regular line, 
but I wanted to impress this point upon you, because 
in your recommendations to Congress no doubt what 
you have to say will have a great deal of weight. 
Prior to entering the war our vessels on the Pacific 
were being transferred to other countries, as the 
owners claimed that they could not run them under 
our laws at a profit. This is all true, and no doubt 
you are fully aware of it. After the war it will be up 
to Congress to pass laws which will enable owners of 
the large number of merchant ships now being built to 
operate them at a profit. 

Prior to the War of 1812 the Stars and Stripes flew 
in every port of the world. We see no reason why 
after this war this should not again be the case. 
* * * * * * 



Commissioner Kent. From what you have stated 
you would consider the free zone a device that would 
aid in reestablishing the merchant marine ? 

Mr. Folwell. It would be a decided factor, but it 
is so coupled with the shipping facilities. Of course, 
our ships would have either to go to decay or be 
transferred to other countries. I think it is a very 
important question for you to bring up before Con- 
gress in your recommendations. Something should 
be done to our navigation laws to permit our own 
vessels to run here at a profit. 

Commissioner Kent. Do you not think it is im- 
portant that our own people should also go on those 
vessels as sailors ? 

Mr. Folwell. Certainly. I would keep up the 
wages. That is one reason why the manufacturers in 
Philadelphia are in favor of high tariff. It allows us 
to pay the extreme wages that are prevailing in this 
country and still compete with the world. * * * 

Mr. E. D. Zeller, representing the Growers' and 
Importers' Exchange, Philadelphia, Pa. 

In the first place, we are all agreed that the bonded 
warehouse system has proven an advantage to our 
country and should be continued. I think we can be 
agreed that the system by which our domestic manu- 
facturers have been fostered in the matter of ability 
to do some foreign trade as developed under the draw- 
back system has been of advantage. I think this 
drawback system by a more flexible arrangement can 
be made of even greater advantage. 

Commissioner Costigan. Have j r ou any suggestion 
along that line, as to amendment of our drawback 
laws or regulations ? 

Mr. Zeller. Amendment to the drawback regula- 
tions should be along the lines that there shall be less 
difficulty in the formalities that are to be observed, 
always with a proper regard for the protection of the 
revenue. 

I speak as a believer in the drawback system for 
our foreign trade. Many of us encounter these diffi- 
culties. For instance, I might speak from my own 
business experience with regard to sugar. I have 
been for some thirty-odd years in the sugar-refining 
business. As you know, sugar is one of the most im- 
portant articles of import in the city of Philadelphia, 
due to the advantageous location of Philadelphia as 
a sugar-refining city, favorable shipping facilities, 
fresh water, proximity to coal, and available water; 
and we have always done a very considerable export 
business. With the very considerable tariff that 
exists on sugar in the export business very large sums 
were sometimes tied up, often running up as high as 
half a million dollars. Of course, the costs in carry- 
ing are very considerable with regard to that particular 
item. 

Commissioner Kent. How long does it take to get 
that drawback ? 

Mr. Zeller. The operation of the present method is 
for the refiner to work in periods of time, sometimes 
two weeks, sometimes a month, and it involves the 
liquidation of all of the import entries before the 
refinery abstract involving the manufacturing par- 
ticulars can be liquidated. As you know, the matter 
of appraisal, the matter of weighing, and all the details 
of importation move somewhat slowly through the 
customs procedure, and it sometimes happens that 



FREE ZONES IN PORTS OF THE UNITED STATES. 



67 



there is a very considerable delay. One particular 
cargo that might be held up for some reason by the 
Government would prevent the liquidation of this 
abstract in a reasonable time. 

Commissioner Kent. Can you liquidate and get your 
drawback prior to the- arrival of the cargo in a foreign 
port, or do you have to wait for landing receipts or 
returns ( 

Mr. Zeller. No; a bond can be given. If your 
abstract is liquidated and your export entries are 
liquidated, you tan collect your drawback within 3b 
days after the clearance of the exporting vessel by 
giving bond for the production of the landing cer- 
tificate. 

Commissioner Kent. How long does that bond have 
to run i 

Mr. Zeller. That bond might be for a hundred or 
a hundred and fifty thousand dollars. 

Commissioner Kent. How long would it run before 
that bond is canceled? 

Mr. Zeller. That bond runs for about a year's 
period, and then you have to produce your landing 
certificate. 

Commissioner Kent. Who furnishes those bonds, 
the bonding companies ? 

Mr. Zeller. The bonding companies will furnish 
them; yes, sir. 

Commissioner Kent. Is that customary ? 

Mr. Zellek. It is customary in the larger business 
for the bonding companies to provide it. Of course, 
that entails an expense that seems to be altogether 
unnecessary in a way because the completion of the 
full facts are carefully ascertained. The bill of lading 
for instance is issued for the volume exported and it is 
generally under an inspection by officers. 

Commissioner Kent. Why should it not be conclus- 
ive in the case of a tonnage of sugar that has gone into 
export on a ship that has left the port ? Why should 
you have to wait for any verification ? 

Mr. Zeller. I think that is merely an inherited 
system. It is conclusive as far as the merchandise is 
concerned. 

Commissioner Kent. It could not put into another 
American port without entering the vessel? 

Mr. Zeller. No, sir. 

Commissioner Kent. Then, do you see aDy sense at 
all in waiting tor a landing certificate from the foreign 
country before your bond is canceled ? 

Mr. Zeller. I do not see that the landing certificate 
is anything more than a form ah ty that has been in- 
herited, and it is one of those things that causes a 

great deal of annoyance at times. 

^ % % ^ & ^ 

Mr. Albrecht. I would like to ask what is the 
practice in these times with respect to cargoes which 
by reason of the activity of the submarines are sunk 
and not landed at all. Is there any drawback to be 
obtained under those circumstances when certainly 
no landing certificate is furnished, nor could after a 
short time any evidence be found of the cargoes ? 

Commissioner Kett. And would the bond ever be 
canceled? 

Mr. Zeller. We have had one or two instances of 
total loss of cargo where the facts were submitted, 
and we had evidence from the English Government 
that such a vessel had disappeared and, of course, 
the Secretary of the Treasury on these representations 
has canceled the bond. 



Commissioner CosTIGAN. How much money of the 
company you represent is tied up on the average 
under the drawback system '. 

Mr. Zeller. Well, 1 made a collection at the close 
of the year of $493,000. I think we were probabl} 
60 days after the clearance of the ship — in some cases 
more than 60 days— an average of from 45 to 60 days 
in recovering that drawback. 

The operation also is peculiar in that under the 
sugar system certain ports have been delegated as 
quite competent to liquidate the refining aostracts, 
for instance, of the manufacturer and all of the in- 
portant details, Philadelphia not being one of those 
selected ports for the liquidation of abstract. All of 
those details in the importation are prescribed and 
sent to the port of New York and then in due course 
in the ordinary movement of rotation they are liqui- 
dated by the port of New York and then sent back to 
the port of Philadelphia. When that information is 
received our customs authorities then have the facts 
upon which they can proceed with the liquidation of 
the export entries from the port of Philadelphia. 
It seems to me a very roundabout proposition and 
altogether unnecessary. 

I think we have to look at it a little more broadly 
than from a purely local standpoint. I have been 
in the port of Hamburg and I have observed the 
development there. It seems to me that a free port 
will be of great advantage to any city, or municipality, 
if you will, in which it is located. Not only will it 
be of advantage to the mere local surroundings, but it 
will be an advantage to the hinterland to which 
possibly a great deal of the merchandise flows. Those 
who have been in Hamburg have noticed those square- 
riggers. They were in the East and* West African 
trade. They would gather up from the different ports 
along there all sorts of merchandise and replace it for 
distribution in the port of Hamburg. The available 
service of cheaper lines out of Hamburg would dis- 
tribute that collected merchandise and mean a great 
advantage in its movement. 

Further than that, in Hamburg there are a great 
many merchants. Now, why is that ? It is because 
the facilities for the handling of merchandise have 
thrown into that location great mercantile houses. 
I think that is one of the things in which we are 
woefully lacking in this country. The establishment 
of more of an international exchange of commodities 
is going to regenerate the thought of our American 
minds internationally and possibly restore what was 
I think one of the great things we had in olden times, 
large firms dealing in all sorts of commodities from all 
parts of the world. 

Any one who has been in Hamburg will see that the 
English have sent their sons out into those houses, the 
same as they do in South America, and if we are going 
to have a great fleet of merchant ships we must also 
have American merchants who are capable of thinking 
and trading internationally along those lines. A great 
campaign of education is necessary to encourage us to 
look out over a broader field. 

I think in a great many instances we have chosen to 
localize our thought rather than to internationalize our 
thought, and to me one of the strong advantages of 
the free port will be the restoration not only of the 
employment of the American mercantile marine 
power, but the employment of the American merchant 
for international trade. 



68 



FREE ZONES IN PORTS OP THE UNITED STATES. 



Mr. John W. Liberton, the Atlantic Befining Co., 
petroleum products, Philadelphia, Pa.: 

* * * * * % 

I represent the petroleum interests, the Atlantic 
Refining Co., as well as the Maritime Exchange. We 
are not making use of the drawback system for the 
reason that although in years past we have imported 
large amounts of tin and collected very large sums in 
drawbacks, as much as nearly a hundred thousand 
dollars in one month, we are at present using the 
domestic material. But that is likely to change with 
the tariff and trade conditions. 

We are located in that part of the city referred to 
by Mr. Zeller and Mr. Catell, the southwestern section, 
where possibly our section might be taken into a free 
zone. I doubt very much if it would pay us — we 
occupy about a square mile of land — to move into the 
free zone. If we should return to the importing of 
foreign tin and collecting drawback, I doubt even then 
under those conditions if we would move into the free 
zone. But if we could be taken into it, it would no 
doubt be very beneficial to us. 

Commissioner Kent. Of course, that is a matter of 
great interest to the commission. In other words, 
your statement would lead one to suppose that if you 
were starting out de novo and did not have fixed invest- 
ment, you would probably put part of that in the free 
zone. 

Mr. Liberton. Very likely. On the question of the 
present system of drawbacks I feel very strongly on 
two points, both of which I believe have been touched 
upon by other speakers. One is the matter of the 30- 
day period before the drawback can be collected, and 
the other is the matter of landing certificates. 

The money we have invested in tin when we are 
buying the imported material represents very large 
amounts, because we do not bring it in say in one week 
and export it in another as, perhaps, the sugar people 
do. We have the tin lying here for months sometimes, 
because we are bound to have a supply on hand in 
order to take care of the uncertain arrival of the 
vessels taking the export cargoes and we have to have 
a supply on hand ahead of time, and that duty is 
locked up during all of that period. It seems to me 
that the 30-day limit could be very well waived by the 
Government. 

Then there is the matter of being required to file a 
bond to produce a landing certificate. While we have 
a year in which to do that, sometimes it has been 
necessary to extend it, and it has taken us two years 
before that bond is canceled. 

Commissioner Kent. Does the expense of the bond 
bear any relation to the length of time that the bond 
is outstanding ? 

Mr. Liberton. We do not employ bonding com- 
panies for that purpose. We give bond ourselves, 
and there is not an actual outlay of money so far as the 
bond goes, but it is largely a matter of the trouble and 
difficulty, the extended correspondence in getting those 
certificates back, and then if there is any discrepancy 
to have to refund the duty. 

Commissioner Kent. Your statement brings up an 
interesting question as to how you can avoid difficul- 
ties in order to furnish bond. You say that you do 
not have to tie up any money and you do not have 
to pay any fees for the money. A great many people 
do have to do that. 



Mr. Liberton. That is one reason why it is not fair 
to the general community, and I believe this free zone 
would be very valuable to the man with limited capital 
who could start fresh and take advantage of this 
locality if it was purely an export business. For that 
reason, under the principle of being interested in the 
entire body politic, we would favor and strongly urge 
the bringing of a free zone in Philadelphia. 

, Dr. William D. Wilson, director Commercial 
Museum, Philadelphia, Pa.: 

■t* *S *T* ¥ "F ¥ 

Commissioner Kent. Dr. Wilson, I understand that 
you are the gentleman who is conducting this big Com- 
mercial Museum here. 

Dr. Wilson. Yes, sir. 

Commissioner Kent. The point has been brought 
before the commission a number of times that there 
would be a great advantage in a free zone in having 
a continual exhibit for both foreign and domestic goods 
showing the methods of repacking and demonstration 
packages for trade. Why and wherein would a free 
zone be a better place for such an exhibit than cus- 
toms territories ? Is there trouble about bonding 
goods that are on exhibition, samples, etc. ? 

Dr. Wilson. We have in Philadelphia, in the last 
20 years, accumulated an immense amount of illus- 
trative products brought from all countries. 

Commissioner Kent. Have they paid duty ? 

Dr. Wilson. They have paid no duty. The Gov- 
ernment has been perfectly willing to allow these 
goods, no matter what their value might have been 
or may be, to be put on exhibition, and the Commer- 
cial Museum has been practically a bonded ware- 
house in that sense. The Government has per- 
mitted us many times to remove from the custom- 
house the exhibits which have been sent to us from 
foreign countries or the exhibits brought here and 
put on exhibition in different expositions. It has 
permitted those goods to go direct to the Commercial 
Museum and be opened under the inspection there of 
a customs inspector. 

Commissioner Kent. Can a merchant utilize your 
museum for his samples of foreign goods without any 
interference by the Government people and without 
the payment of duty and without bonding ? 

Dr. Wilson. He would have to have special per- 
mission and a special records would have to be kept 
in the customhouse. For instance, I have one illus- 
tration of a very valuable exhibition of materials 
from Brazil which was sent to New York and finally 
permission given by the customhouse to be sent to 
the Commercial Museum. It was on exhibition there 
for two or three years, always under the eye of the 
customs, and later sent to Hamburg. 

Commissioner Kent. Was it used commercially by 
the merchants here ? Did anybody make any money 
out of that exhibit ? Did they use that as a sample 
of what they would furnish people who were shipping 
with them here in Philadelphia ? 

Dr. Wilson. This particular collection was not 
exactly in that line, but the spirit of the thing would 
have been the same. 

Commissioner Kent. As I understand it, then, your 
museum would not accommodate specific packages 
that some individual merchant wanted to display to 
a prospective customer? 



FREE ZONES IN PORTS OF THE UNITED STATES. 



69 



Dr. Wilson. We have never taken that up in 
exactly that way. 

Commissioner Kent. I am thinking about a purely 
business museum. I was wondering how far you 
wont into the active end of commerce. 

Dr. Wilson. We have never stimulated that par- 
ticular method of doing business. 

*t* -t* -t- ^f- -I' 'T- 

Commissioner Kent. I was, of course, particularly 
interested in the question as to whether there would 
be a better opportunity to exhibit business samples in 
a free zone than there would be in customs territory, 
and I was anxious to get some information as to the 
practice and custom in that regard. 

Dr. Wilson. I should think that a free zone which 
would allow anybody to enter, any individual to enter 
freely and study the situation, would offer — I mean 
under the present restrictions — a much better oppor- 
tunity for the exhibit of all foreign trade materials 
which might be used and utilized in the manufac- 
turing interest, unless we had abrogated some of the 
laws which control our customs. 

Commissioner Kent. Would not an exhibition of 
the methods of packing adjusted to foreign countries 
also be of benefit ? 

Dr. Wilson. I think that could be done just as 
well in the Commercial Museum. We have taken 
that up. 

* ***** 

Considered as a place where foreign goods may 
be stored, mingled, repacked and manipulated for 
export, all free from customhouse interference, the 
advantages of free ports are at once apparent and 
concrete. It is in this that, should the system be 
installed in the United States, its value would be 
earliest demonstrated. 

* ***** 

Considered from the manufacturing standpoint, as 
a place where imported raw materials may be made 
up for export, the value of a system of free ports or 
free zones for the United States is more in the future, 
though perhaps it may have equal possibilities. 

The establishment of these free zones would elimi- 
nate for the industries established in such areas some 
of the admitted disadvantages and inconveniences of 
the present system of drawbacks, and, if the facilities 
were used to any great extent they w r ould likewise 
tend to reduce the economic waste involved in the 
present system of manufacturing for export, goods 
into which foreign raw materials largely enter. 

It is conceivable that such industries as do not 
require large space or extensive equipment, and in 
which the processes of converting the imported raw 
materials into export products are few and simple, 
would take advantage of and be greatly benefited by 
the establishment of a system of free ports. 



Mr. John L. Vandiver, customshouse broker, 
Philadelphia : 

****** 

Commissioner Kent. Do you believe in throw r ing 
goods out of the warehouse at the end of three years ? 

Mr. Vandiver. There is no necessity for that. If 
the importer is still interested in the goods and is 
willing to pay the storage on them, there is no reason 
why any question of that kind should be raised, That 



has nothing to do with the question of bonded manu- 
facturing. 

We have to furnish about seven different evidences 
of export. Now that is entirely senseless. 

Commissioner Kent. The goods have to bo consecu- 
tively identified. 

Mr. Vandiver. They do not in many cases. They 
have been trying to do that in the last few years. I 
can give you many cases where they practically elimi- 
nated a man from obtaining drawbacks because they 
insisted on unnecessary requirements. You can take 
the candy manufacturers in Philadelphia, for whom 
we collected for many years. They had to quit it, 
because they simply could not follow the advice of a 
special agent who would come around and say, 
"When you get the five barrels of sugar you will have 
to put that aside and follow it up to know exactly in 
what particular item that sugar goes." That is not 
necessary, because the firm uses only imported sugar. 
They can not substitute any other kind of sugar, and 
if they should happen to use this barrel or that barrel, 
it does not matter to the Government, because the 
rate of duty is practically the same. But there are 
many other cases worse than that. 



Interview Between Hon. William Kent and Capt. V. 
Lassen, Jannary 3, 1918. 

free ports. 

Minutes of meeting between Hon. William Kent, Hon. 
E. P. Costigan, members, United States Tariff 
Commission, Capt. V. Lassen, superintendent 
Scandinavian- American Line, New York City, and 
Mr. S. W. Hamilton, chief marine division, New 
York customhouse. 

Capt. Lassen had stated that the free port or free 
zone of Copenhagen had proven inadequate in area 
for the business involved. 

Mr. Kent. In order to get the advantage of a free 
zone, you need a large area? 

Capt. Lassen. Yes, sir. 

Mr. Kent. What has the free zone done to the cus- 
toms zone in the matter of the use of docks, etc. ? 
Has it taken away a large portion of the business ? 

Capt. Lassen. No, sir. Business has gone to the 
free port because it could not be handled in the old 
port, although they have been extending the old port 
to the south as much as they could. They have not 
been able to extend it sufficiently. Naturally, a whole 
lot of the business goes into the free port. 

Mr. Kent. Free goods as well as dutiable ? Domes- 
tic exports as well as reexports? 

Capt. Lassen. It has been an advantage to get 
there, because they can always export from the free 
port. 

Mr. Kent. Is it a better place for export cargo ? 

Capt. Lassen. Yes. They have the facilities there 
to handle it. 

Mr. Kent. How do the facilities of the customs port 
compare with the facilities of the free port? 

Capt. Lassen. In the free port they are modern. 
They have the facilities to handle cargo much better 
in there than in the old port. They have traveling 



70 



FREE ZONES IN POETS OF THE UNITED STATES. 



cranes on docks. The cranes take the cargo right 
from the ship's hold and bring it across onto the plat- 
forms, where they can wheel it into the warehouse. 

Mr. Kent. There is no delay for sampling, or any- 
thing like that? 

Capt. Lassen. Not at all. 

Mr. Kent. How do the charges in the free port and 
customs port compare ? 

Capt. Lassen. I really could not tell you, for the 
reason that the customs port authorities are in Co- 
penhagen, but I think that the charges were about 
the same. The customs port is also owned by private 
persons. 

Mr. Kent. In the free zone, do the liners have their 
own space? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Do any of the lines put up their own 
warehouses ? 

Capt. Lassen. All the warehouses are put up by 
the Free Port Co. The only thing that is put up by 
the steamship company, I think, is the baggage ware- 
house, and waiting rooms for passengers, and offices 
to care for the arrival and departure of the passenger 
ships. 

Mr. Kent. Is there any general building for an 
exhibition of samples, etc. 

Capt. Lassen. No, sir. - 

Mr. Kent. How is that handled? Suppose a man 
is going to buy goods from those stored in the free- 
port warehouses. How is he going to see what he is 
buying ? 

Capt. Lassen. He would go into the warehouse and 
see it. 

Mr. Kent. Would not a special exhibit building be 
a good thing? 

Capt. Lassen. I think it would be. 

Mr. Kent. As to the difference in charges between 
the free port and the customs port 

Capt. Lassen. I am not sure of the difference there, 
but I think there is very little difference, because all 
the port business is handled by the harbor board. 

Mr. Kent'. You do not know whether this port ha? 
been a financial success? 

Capt. Lassen. I think it has in later years. 

Mr. Kent. From what I can learn, there are two or 
three things in the nature of subsidy. The Govern- 
ment guaranteed the interest on bonds, over and 
above expenses, up to the amount of 8,000,000 kroner, 
subject to restitution from earnings. What is the 
value of kroner? 

Capt. Lassen. One kroner is about 27 cents. 
At the present rate I tbink the kroner is about 32 cents. 

Mr. Kent. Why do not all ships go into the free 
zone? Why should any of them go to the customs 
port? 

Capt. Lassen. Mostly bulk cargoes are handled in 
the customs port, such as coal, coke, etc. — cargoes 
that go direct to merchants who have their own 
warehouses. The old customs port is lined with 
warehouses along the wharves, and the merchant 
buying a cargo of grain, for instance, would want that 
delivered at his own warehouse. Farther south in 
the harbor there is nothing, but coal and coke handling. 
The ships going into the customs wharf itself go there 
because there is a bonded store there, and a sampling 
store. But it is only small cargoes that go there. 
All the big cargoes go into the free port because they 
have the facilities. 



Mr. Kent. What would happen to the existing 
facilities in New York if a big free zone Were to be 
established there? 

• Capt. Lassen. They will remain the same. You 
could lighter from the steamer to the free port. In 
Copenhagen, if goods are to be exported from the 
free port into the old port (customs port) they go on a 
lighter, which is sealed, and a customs inspector goes 
along with it to the customs port. 

Mr. Kent. It is sealed and guarded, rather than 
bonded? 

Capt. Lassen. Yes, sir. 

Mr. Kent. You think that if a large free zone were 
established in New York Harbor, there would be 
business enough for the present facilities in addition 
to the free port? 

Capt. Lassen. I think so, because there is so much 
passenger business. The piers on the river front in 
New York are occupied with the passenger business, 
and it would not do to transfer the passengers to the 
free port, because they must be convenient to the 
hotels, etc. The free port must be established in such 
a place as to have easy access to the railroads. Al-:o, 
there must be land behind, so that houses can be 
built for the employees. 

Mr. Kent. Are you familiar with Hamburg? 

Capt. Lassen. Yes, sir; but that was many years 
ago. As far as I understand, Hamburg has been 
working under the same conditions as Copenhagen — 
too small. They could not extend it. They had no 
space to develop. 

Mr. Kent. What is your idea about manufacturing 
in a free zone ? 

Capt. Lassen. I think it is a very good idea. You 
get raw materials in and have them manufactured, 
and then export them either to the interior or to 
foreign ports. 

Mr. Kent. But goods manufactured in a free port 
are handicapped as against the interior. On the other 
hand, your mixing, blending and cleaning would be of 
assistance. 

Mr. Greer. Did you ask Capt. Lassen about the 
regulations concerning vessels entering the free port? 

Mr. Kent. What does a vessel have to do en 
entering the free port at Copenhagen ? 

Capt. Lassen. Nothing, except file a copy of the 
manifest at the customhouse. 

Mr. Kent. But you have the quarantine? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Do you have any regulations regarding 
seamen ? 

Capt. Lassen. No, sir. 

Mr. Kent. How about the mails ? 

Capt. Lassen. They are taken care of in the free port. 

Mr. Kent. So that there is no difference in treat 
ment of the mails or the quarantine from what there 
would be in the customs port? 

Capt. Lassen. No, sir. 

Mr. Kent. No benefit ? 

Capt. Lassen. No, sir. 

Mr. Kent. How about unlading ? Can you unload 
more rapidly ? Is there any law that holds you back 
from the customs zone ? 

What happens to the cargo ? 

Capt. Lassen. It always goes to the warehouse. 
The warehouses are built right up to the docks. Of 
course, some goods that wnl stand the weather are 
sometimes left on top of the docks. 



FREE ZONES IN PORTS OP THE UNITED STATES. 



71 



Mr. Kent. In New York there arc a lot of ware- 
houses back from the waterfront — ■ — 

Capt. Lassen. In New York anybody can apply 
for permission to run a bonded warehouse. They are 
scattered all around. It is very inconvenient, be- 
cause the goods must !>e trucked. That is why I think 
a modern free port, with warehouses on the docks, will 
be of great assistance to us. 

Mr. Greer. Suppose a vessel wanted to unload at 
night or work on a holiday; can they do that at Copen- 
hagen in the free port ? 

Capt. Lassen. Yes, sir; at any time. 

Mr. Greer. At New York, under our customs laws, 
no vessel can unload at night without a permit. 

Capt. Lassen. There is a special permit for that. 

Mr. Greer. And before it can unload at all the 
master must go to tho customhouse and make an entry 
of his vessel. 

Capt. Lassen. No, sir; not necessarily. A prelim- 
inary entry is taken out by the broker. Then the 
master can enter his vessel within 24 hours after ar- 
rival. Outside of that, there is nothing. 

For instance, if I am expecting a steamer, and wish 
to discharge immediately upon arrival, before it is en- 
tered I can apply for a permit to discharge that 
night, or load that same night if it is bonded goods. 
As far as we are concerned, we take out a monthly 
permit for lading bonded goods in New York. 

Odd steamers that come in are different, because 
pier space must be arranged for, etc. With the liners 
it goes just like clockwork. 

Mr. Kent. Are your ships often delayed by cargo 
being held on the dock or delayed in removal ? 

Capt. Lassen. Cargo is often delayed on the dock 
on account of papers or bills of lading or something 
like that not coming forward. 

Mr. Kent. How about the percentage that is taken 
out for sampling, inspection, etc.; does that delay you 
much? 

Capt. Lassen. No, sir. We have trouble and delay 
many times on account of the customhouse inspector 
being unable to get a truck when the storage time for 
the goods is up. According to the rules and regula- 
tions, he can hire a truck from anybody, outside of 
the contract trucks, and let the merchant pay the 
regular rates for trucking, loading, etc. But at pres- 
ent they must not do that. They must call up some 
deputy on the telephone at the customhouse, and he 
must decide. It always takes time. We have re- 
cently had a case where we could not get rid of the 
goods. The customhouse inspector tried to get the 
trucks over, but he could not get them. He went to 
his district inspector and he had the same trouble. 

Mr. Kent. How do you collect your outgoing cargo 
in New York — by lighters ? 

Capt. Lassen. Some comes by lighters and some by 
rail. We get some from the Hoboken Railway Co. and 
the rest by lighters. The majority of the incoming 
goods go by lighters from the pier. I believe that it 
would be much better if they would use the custom- 
house inspector as he was used in the past — pay him 
a salary and hold him responsible for the proper in- 
spection of goods. 

Mr. Kent. Would not the free zone tend to get your 
cargo together much better than it is gotten together 
now? 

Capt. Lassen. I believe it would facilitate matters 
wonderfully if the free port has good railroad con- 
nections and good mechanical appliances, 



Mr. Kent. How is the supply of fuel, oil, etc., han- 
dled under present conditions with reference to your 
line at New York >. 

Capt. LASSEN. Wo are coaling by the old-fashioned 
method. In Coponhagen, the company has its own 
elevator that goes alongside tho ship and coals from 
there. 

Mr. Kent. Do you coal at your own dock in New 
York ? 

Capt. Lassen. Yes, sir; but we have to hoist it up 
in buckets from the barge alongside. It works all 
right, but it is not as fast as it might be. 

Mi-. Kent. Do you have Diesel -engined ships? 
Where do you get your oil ? 

Capt. Lassen. The Standard Oil Co. has lighters 
that come alongside the ship. 

Mr. Kent. Could not the oil be obtained by a pipe 
line direct to the ship ? 

Capt. Lassen. In the free port I do not think you 
could do that. You must remember that there are a 
great many ships coming there. I do not think it 
would pay to put down a pipe line. The Standard 
Oil Co. is so well equipped with lighters that it would 
not make much difference. 

Mr. Kent. In Copenhagen does a great deal of ship- 
ping anchor in the stream, or does it go to the dock? 

Capt. Lassen. It all goes to the dock, except those 

loaded with explosives or more than 18 barrels of 

kerosene, which must discharge at a certain place. 

. Mr. Kent. At Hamburg there is a great deal of 

anchorage in the stream on account of lack of space ? 

Capt. Lassen. Yes. All the big Hamburg liners are 
tied up to buoys, and their cargoes taken off by 
lighters, and distributed up the rivers or elsewhere by 
lighters. 

Mr. Kent. In Copenhagen the warehouses are all 
built by the company ? 

Capt. Lassen. Yes, sir. 

Mr. Kent. And the equipment is all furnished by 
the company ? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Outside of the office buildings, etc., your 
shipping company does not own anything? 

Capt. Lassen. No, sir., 

Mr. Kent. Does your company lease a certain por- 
tion of the piers, etc., or do they take a chance on 
getting a berth ? 

Capt. Lassen. Our line has exclusive berths for the 
ships. 

Mr. Kent You pay a regular rental? 

Capt. Lassen. Yes, sir. So much per ton. 

Mr. Kent. Suppose you did not send any ships to 
the free port and therefore had no tonnage, would you 
have to pay anything ? 

Capt. Lassen. Undoubtedly, we would have to pay 
something; but I am not familiar with the arrange- 
ment in that case. 

(Mr. S. W. Hamilton, of the New York customhouse, 
came in to the meeting. Then followed reading by 
Mr. Kent of skeleton report on free zones.) 

Mr. Kent. What happens to the cargo of a disabled 
ship coming into New York Harbor? 

Mr. Hamilton. We give a permit to land and re- 
move cargo. There is no trouble about it. The cargo 
remains under customs supervision while it is stored 
on the lighters or on the piers. 

(During general discussion of possible locations, 
Capt. Lassen stated that any areas where piers are 
built at the present time should never be taken over.) 



72 



FREE ZONES IN PORTS OF THE UNITED STATES. 



Capt. Lassen. After five years this area in Copen- 
hagen proved to be just half large enough. 

Mr. Kent. It did not kill off the existing facilities ? 
They built a new customs district besides trying to 
extend the free zone ? 

Capt. Lassen. Yes, sir; to the south. 

Mr. Kent. It is stated that a great advantage was 
found in the use of banking facilities in the case of the 
free port over the customs port; that is, in the stand- 
ardization and issuance of and trading in warehouse 
certificates. The banks Avould lend money on the 
certificates ? 

Capt. Lassen. Oh, yes; they do that. 

Mr. Kent." What is the difference between the free 
port and the customs port in that connection? 

Capt. Lassen. In the customs port, they are mainly 
private warehouses. But any person can go into the 
free port and get its facilities and handle his trade 
through the banks. 

Mr. Kent. If a free zone were established at New 
York, what would be your procedure if you were 
bringing in a ship with both passengers and dutiable 
and free cargo? Would you go into the free port, or 
into the customs port ? 

Capt. Lassen. That would depend on the desires of 
the importers of the cargo, whether or not they desired 
it delivered at the free port. 

Mr. Kent. How do you think they would want it 
handled ? 

Capt. Lassen. I believe that if we had the free port, 
with good facilities, such as rail connections, ware- 
houses, etc., that they would want it to go to the 
free port. 

Mr. Kent. Would the vessel or the lighter go in ? 

Capt. Lassen. I think the vessel would go to the 
regular dock and send the lighter to the free zone. 

Mr. Kent. You do not think that the vessel would 
land the passengers at the regular dock and then go 
to the free zone ? 

Capt. Lassen. I do not think so, because it is expen- 
sive to transfer the ship from the dock to the zone. 
While we are discharging the ship, we are coaling her, 
and putting on sea stores, and doing anything that 
could be done while the vessel was being transferred. 

Mr. Kent. Do any passengers go into the free zone 
at Copenhagen ? 

Capt. Lassen. Yes; all our passengers are landed in 
the free zone there. Those going across to Sweden 
have their baggage assembled, and go right out from 
there. 

Mr. Kent. How about passengers and baggage 
going into Denmark ? 

Capt. Lassen. That is examined there and the duty 
paid there. 

Mr. Hamilton. At the free port? They have cus- 
toms inspectors at the free port ? 

Capt. Lassen. Yes, sir. 

Mr. Kent. Mr. Hamilton, if a free port were estab- 
lished at New York, would it be your opinion that 
the passengers and their baggage should be prevented 
from landing there ? 

Mr. Hamilton. If you could concentrate all the 
passengers and their baggage at a certain point it 
would simplify matters a great deal. The great 
problem now is to move a force of men from one point 
to another. 

Capt. Lassen. I think that it would be an awful 
handicap if the passengers and their baggage were 



handled at any distance from the great railway ter- 
minals and the hotels. 

Mr. Hamilton. Passengers and their baggage are 
disposed of before the freight is touched. 

Capt. Lassen. Besides that, the vessels carrying 
mainly passengers do not carry much general cargo. 
What they do carry is mainly express stuff. I do not 
think that the harbor as it is would be affected by the 
establishment of a free port. 

Mr. Kent. Suppose you had a cargo that was 90 
per cent free goods and 10 per cent dutiable goods. 
Would you run that ship into a regular port or the 
free zone ? 

Capt. Lassen. That would depend on what the im- 
porter said. The goods might be consigned to either 
place. We would land them at the place to which 
they were consigned. 

Mr. Hamilton. The passenger steamers will always 
go to their present docks. 

Capt. Lassen. Of course. 

Mr. Kent. They permit retail stores in the free poit 
at Copenhagen ? 

Capt. Lassen. They are confined to ship stores and 
restaurants. 

Mr. Kent. That is subsidizing ships' stores at the 
expense of the revenue. They do not have that hi 
Hamburg, do they? 

Capt. Lassen. No_, sir. 

Mr. Kent. Captain, is* there any shipbuilding in 
connection with the free port at Copenhagen ? 

Capt. Lassen. No, sir. 

Mr. Hamilton. Are shipments made from the cus- 
toms port to the free port ? 

Capt. Lassen. Oh, yes; you can export to the free port. 

Mr. Kent. Do they have the drawback system at 
Copenhagen on exports from the customs port ? 

Capt. Lassen. I do not know about that. 

Mr. Hamilton. It merchandise were withdrawn from 
an existing bonded warehouse and shipped to the free 
zone, would that constitute a shipment if it did not go 
into a vessel? 

Mr. Kent. It ought to. That is the theory. When 
it is taken into the free zone it is the same as though 
it were taken out of the United States. 

Mi - . Greer. It would be the same thing as a landing 
certificate in a foreign country. 

Mr. Hamilton. And the customs officer at the en- 
trance of the free zone would receipt for it and certify 
to the shipment ? 

Mr. Kent. It is then hi the free zone. It is none 
of your busmess after that. 

Mr. Hamilton. Suppose a shipment is removed from 
the bonded warehouse almost at the end of the three- 
year storage period and sent into the free zone, and 
there allowed to remain a longer period. Then sup- 
pose that it were shipped to Boston, or even returned 
into New York. How about the duties? On what 
valuation would they be based ? At the time of orig- 
inal importation to the country, or of the second im- 
portation ? 

Mr. Kent. That is a matter for the rules and regula- 
tions. That does not necessarily affect the original 
idea. 

Captain, how do you find the charges in New York 
for lighterage, towage, etc., as compared with Copen- 
hagen ? 

Capt. Lassen. I believe New York is a little higher. 
But I assume that the charges at Copenhagen have 



FREE ZONES IN PORTS OF THE UNITED STATES. 



73 



been changed during the last five years, so 1 really do 
not know. 

Mr. Hamilton. Are the facilities at Copenhagen 
better than they are on some of the modern piers at 
New York I 

("apt. Lassen. Yes, sir. 

Mr. Cent. Do you think the creation of basins and 
plenty of ships' berths better than any anchorage and 
lighterage system '. 

('apt. Lassen. I think so; yes. 

Mr. Hamilton. If a lighter came from the free zone 
into the customs port it would not be permitted to 
discharge unless it did so mider the supervision of a 
customs inspector \ 

Capt. Lassen. That is so. In Copenhagen the 
lighter is generally followed by a customs officer. 

Mr. Kent. That is a matter that can be covered by 
the free-zone regulations. 

Mr. Costigan. Mr. Hamilton, you raised one in- 
teresting point — possible loss of revenue through trans- 
shipment and possible change in date of "original" 
importation. Does anything else occur to you as ob- 
jectionable in the free-port system? Anything that 
may have occurred to you in the course of the dis- 
cussion I 

Mr. Hamilton. I can see that it has advantages in 
some respects, but whether or not it would be prac- 
ticable in New York I could not now venture an 
opinion. 

Capt. Lassen. There is no doubt that there will 
always be a little trouble. But I think that will be 
eliminated. 

Mr. Hamilton. There are immense possibilities in it 
to handle foreign trade. 

Mr. Kent. That is the basic idea. 

Capt. Lassen. There is one thing that we must 
make up our minds to, if we want to do business with 
foreigners, and that is that we must give our customers 
what they want. 

Mr. Kent. Suppose we want to make a packed pack- 
age for shipment to South America. We must pay 
all the duty on that before we can make it up ? 

Mr. Hamilton. Y^es, sir. 

Mr. Kent. If that is true, then we must charge the 
South American merchant what the Hamburg mer- 
chant must pay, plus our duty ? 

Mr. Hamilton. Yes, sir. I do not know of any 
provision now that would allow you to do that with- 
out paying the duty. 

Mr. Kent. Having to pay the duty on the separate 
articles in the packed package cuts us off from that 
trade. 

Mr. Costigan. Y'ou can provide for that by law in 
the present bonded-warehouse system. 

Mr. Hamilton. Y"es; but you have remarkable 
possibilities for fraud in the scattering of the ware- 
houses. 

Mr. Costigan. Who meets the policing expense at 
Copenhagen ? 

Capt. Lassen. Customs inspectors are watching 
the entrance as far as customs are concerned. Be- 
sides that, the city has a regular police station in the 
free port. 

Mi*. Kent. It is part of the municipality as far as 
the policing is concerned. 

Capt. Lassen. The guardmg of the warehouses, 
docks, etc., is done by the free port corporation at 
Copenhagen. 



Mr. Kent. The free port corporation does not have 
to pay for the policing. In Hamburg it is a charge 
against the business. There arc just three things that 
Denmark does for the free port: One is the policing, 
another is the granting of the privilege to buy ships' 
stores free of duty inside the port, and the third is the 
guaranty of interest on the bonds up to the extent of 
8,000,00*0 kroner. 

Mr. Costigan. Do the railroads run into the free 
zone ? 

Capt. Lassen. They run right up to it. The State 
owns the railroads. 

Mr. Costigan. You would require an enlargement 
of the customs administrative force. 

Mr. Kent. The chances are that you would very 
greatly enlarge the customs. The policing charges 
should be paid out of the charges of the port. 

(Adjournment.) 

Extracts from Letter of George R. Meyercord, President 
the Meyercord Co. (Inc.), Chicago, 111., of May 2, 
1918, to Hon. William Kent, Member TJ. S. Tariff 
Commission. 

I have been carrying on rather an animated cor- 
respondence trying to bring home that side that I 
first brought up with you — namely, the development 
of foreign trade to enable American manufacturers 
to purchase part of their article of commerce abroad 
and continue to make part of the article in this market 
and use the zone for the assembling for export market. 

I firmly believe that many American manufacturers, 
such as the cash register people, who just before the 
war erected a plant at Birmingham, and other manu- 
facturers, would continue to remain, in part at least, 
American manufacturers in their export shipments. 
This is the one phase of the bill that appeals to me most. 
I believe that if sufficient arguments and concrete 
examples were advanced along that line of thought, 
greater support for the measure could be secured. 

I think I cited the sewing machine incident to you. 
I will now point out that that was originally, at the 
time the patents were alive, an American industry 
and only transferred to the foreign field on the expi- 
ration of the patents; but I do believe that those 
factories could have been kept in America, at least to 
the extent of makmg the heavy castings and wood- 
work here, the finer parts having been imported and 
assembled in this neutral zone. 

I believe that is also true with regard to articles 
like cream separators. It is only four or five years 
ago that the Sharpless people at West Chester, if I 
remember correctly, opened up a factory in Hamburg. 

It is only a matter of time when the vast export 
business of American typewriting companies will be 
transferred to the European branches of these com- 
panies, unless something of this character is done. 

Broadly speaking, my idea is that small parts 
requiring expensive labor application in the article 
could be made in Europe, and the heavy and broader 
work done here, and instead of the American industry 
losing the entire article, part of the article would 
continue as American manufacture, and the profit 
accruing on the small part — which would be assembled 
in this zone and placed in the machine — would also 
naturally remain as American capital. 

This is the one phase of this situation that I believe 
will appeal to the Members of Congress, provided it is 



74 



FREE ZONES IN PORTS OF THE UNITED STATES. 



advanced strongly enough. That's a phase of the 
question that would be particularly interesting to such 
a vast gathering of business men and manufacturers as 
would attend such a conference as the one I attended 
at Cincinnati, the National Foreign Trade Council. 
If I can be of any further assistance, command me. 



Letter of Chas. D. Boyles to Hon. William Kent. 

New York City, June 14, 1918. 
Hon. William Kent, 

United States Tariff Commission, 

Washington, D. C. 

Dear Sir: Referring to our conversation regarding 
the writer's opinion and experience in the past with 
the free ports of Europe: 

The writer was a member of the Albert Dickinson 
Co., of Chicago, wholesale seed dealers, for 35 years. 
This company's business extended all over the world 
and we did a free business in other parts of the worlp 
on goods not intended for the American markets, in 
addition to the goods which we brought to the United 
States. We had to meet the competition of the Euro- 
pean, Asiatic, and African merchants and consequently 
were compelled to study and find the most economi- 
cal methods of transportation, storage, and distribu- 
tion. The free ports of Europe we found in many 
instances much cheaper for the carrying of these stocks 
of goods, there was less red tape and less expense. 
We were able to move the goods m and out of the free 
ports quicker than we could those ports that were 
controlled by customs duties and regulations. 

We found that the warehouse companies in the free 
ports made financial arrangements so that we were 
able to secure advances on our goods while lying in 
their warehouses on very reasonable terms. In many 
instances, the German steamship lines made specially 
low rates of freight to the free ports in order to secure 
our business and take it away from the English, 
Dutch, and Belgian shipping ports. All these reasons 
caused us to accumulate stocks in the free ports where 
we held them, waiting to sell them in whatever part 
of the world that we could get the best price. Our 
dealings were exclusively in agricultural products and 
we made it a practice to purchase the surplus stocks 
in various markets of the world when the prices were 
below the cost of production, ship them to these free 
ports where we could store them and finance them 
cheaply and hold them until the failure of that par- 
ticular crop in some part of the world caused a decided 
advance in the market. We then sold them to the 
best advantage in whatever part of the world we found 
the highest prices existing. 

Some of these lines of goods are grown in parts of 
the world where it would not be practical to accumu- 
late and carry the stocks in the proposed free ports of 
the United States. But others could be handled in 
the same way if the same facilities existed in the 
United States and there are many other lines of goods 
besides our line which could be accumulated in the 
American free ports to just as good an advantage as 
in the European free ports, if these ports and faculties 
existed. 

The United States is to-day taking her rightful posi- 
tion in the world and the merchants with the assistance 
of the Government should establish all machinery of 



every nature that is necessary for the United States 
merchants to be able to compete with the merchants 
of the entire world for the trade of the world at the 
close of the war. Competition is going to be very 
sharp after the close of the war in many lines and the 
merchants of the United States need every possible 
facility, including free ports and a merchant marine 
controlled along lines which will permit them to meet 
the world's competition. These two facilities, I be- 
lieve, are just as essential to the future success of the 
United States in the world's markets as the financial 
relations and facilities which are already being es- 
tablished. 

I trust that this will give you the information which 
you desired, based on the actual experience of our own 
business in the past. 

With kindest regards, I am, 
Yours, truly, 

Chas. D. Boyles. 



Address of H. R. Geddes, of Dover, England. 

At a meeting of the Dover (England) Chamber of 
Commerce on February 14, 1918, Mr. H. R. Geddes, 
managing director of the Continental Daily Parcels 
Express and Northern Traffic (Ltd.), outlined his pro- 
posals for the creation of free ports in connection with 
after-the-war trade. He said, in part: 

What a free port means is a certain area with spacious 
warehouse accommodation where no bonding is nec- 
essary, movement is free, and there is no customs 
supervision; consequently much traffic, especially 
transshipment traffic, is carried to these ports or free 
areas, which become centers for overseas trade on a 
large scale. Certain cities in North Europe found 
their transshipment trade more important than their 
direct exports and imports for the country, or part of 
the country, of which they were- the recognized port 
of entry. For example, Hamburg, at the time the 
German Empire was formed, did a huge transship- 
ment business with the Baltic. Her overseas lines 
carried homeward bound more freight for non-German 
Baltic ports than for the interior of Germany. Ham- 
burg, therefore, refused to join the German customs 
union. Her f arseeing traders did not want customs offi- 
cials levying duties upon all goods she imported or forc- 
ing the maintenance of an expensive system of bonded 
warehouses to escape customs levies. It may at once 
be granted that Hamburg merchants could have paid 
the duties and later collected drawbacks when the 
dutiable goods were reexported, but there is an im- 
mense amount of red tape connected with the col- 
lecting of drawbacks, and there is the added disad- 
vantage of the tying up of large sums of capital, 
which could be more profitably utilized in trade. 
For example, it was necessary to prove the foreign 
origin of all raw material contained in the reexported 
or transshipped product, which, in the case of goods 
partly manufactured within the free area, or blended 
products of mixed home and foreign origin, would 
have been a matter of no small diffi ulty. For these 
and similar reasons Hamburg remained outside the 
Zollverein or German customs union. Unhindered by 
customs officials, ships went there and departed; 
Hamburg stored mixed manufactured goods for export 
or transshipment without any hindrance, and remained 
like a foreign island or a free state on German soil. 



FREE ZONES IN PORTS OF THE UNITED STATES. 



75 



Not until goods were forwarded inland did Hamburg 
know that a German customs tariff existed. ^In 1882 
Hamburg at last consented to enter the customs 
union, but on one condition only, namely, that the 
Empire Should contribute 40, 000, 000 marks toward 
the construction of a free port — i. e., this free port or 
harbor was surrounded by a customs wall and re- 
mained like foreign soil. The city proper entered the 
customs union. Within the harbor limits of the free 
ports arc docks, quays, warehouses, export and manu- 
facturing and blending industries. The Elbe River 
pilot who takes the vessel into port is sworn in as a 
customs official and sees that nothing is unloaded on 
the way up the river. Once the vessel enters the free 
port it is free from supervision. Cargo can be dis- 
charged or loaded at any time, without any charge as 
at present for customs overtime before and after cer- 
tain hours. Cargo can be stored, blended, manu- 
factured, exported, and handled without any inter- 
ference or restriction. The free port is outside Ger- 
many. That is the system which I would like to see 
introduced here, and many British ports, from their 
geographical situation, offer themselves as better 
European distributing centers than Hamburg or any 
other great German ports. 

I have succeeded in obtaining a parliamentary 
return specifying ports of the Continent which are free 
ports and giving information respecting them. This 
report unfortunately is rather old, being dated August 
11, 1904, and I am sorry to have no more up-to-date 
information which, had I been able to obtain, would, 
I feel confident, have strengthened my case materially. 
At the date in question the German Empire had nine 
duty-free areas, varying in size from the free port 
of Hamburg, with an extent of about 2,500 acres, 
to the free district of Danzig, with an extent of less 
than an acre. Austria-Hungary had two, Denmark 
and Roumania had one each. In nearly all cases the 
free port is geographically a part of a larger port area, 
although for statistical purposes the free port is 
usually treated as a distinct locality. The free ports 
in the German Empire are Hamburg, Bremerhaven, 
Cuxhaven, and Geestemunde. There are also the 
free districts of Bremen, Emden, Stettin, Brake, and 
Danzig. The free ports of Austria-Hungary are 
Trieste and Fiume. The Danish free port is Copen- 
hagen, while Roumania's is Sulina. In the port of 
Hamburg the entries and clearances in 1893 were, 
respectively, about 5,500,000 tons each, and rose, by 
1902, to entries and clearances of close on 8,000,000 
tons. Bremerhaven increased in the same period 
from 800,000 tons to about 1,250,000 tons. Cux- 
haven rose from well under 10,000 tons in 1893 to 
nearly 300,000 tons in 1902. This heavy increase, 
however, is to be attributed to the fact of the port 
being used by some of the larger German navigation 
firms. Bremen rose from 350,000 to nearly 900,000 
tons. Emden in 1893 had about 14,000 tons of 
shipping enter and clear, and showed a steady increase 
to the end of 1900, when the total was over 80,000. 
Then the free district was established and the 1902 
returns showed a tonnage of 210,000 entered and 
202,000 cleared. Danzig, where the free area is less 
than 1 acre and is a portion of a larger port area, 
would afford a good parallel to Dover. In 1902 the 
entries were 428,000 tons and clearance 511,000 tons. 
The free district is used mainly for the storage and 
shipping of goods produced in Germany, subject to 



excise or consumption duty. It is also used for the 
transit trade in Russian sugar and other similar 
goods. The ports of Trieste and Fiume show remark- 
able increases of 50 per cent in 10 years in the tonnage 
entered or cleared at the ports. The port of Copen- 
hagen has also increased its tonnage by 50 per cent. 
The trade at the free port of Copenhagen is very 
largely transshipment for the Baltic countries and 
transit trade to and from overseas. Of the nontransit 
trade very large quantities of coffee are sorted in the 
free port. The port of Sulina in Roumania is rather 
extensive, being a length of 3 miles of the Sulina 
branch of the Danube. Here again a very large trade 
is done. 

I have learned during my travels abroad that Swe- 
den proposes to establish free areas or free ports at 
Gothenburg and at or near Stockholm. In 1916 there 
was much talk at Petrograd of the establishment of a 
free port at the Novy Port, but I am, of course, uncer- 
tain as to how recent developments may have affected 
the scheme. Further, and this is interesting, Switzer- 
land has also considered the establishment of a free 
area at Basle. Switzerland is exceedingly well situ- 
ated for transit trade, being near the industrial districts 
of France, Italy, Austria-Hungary, and the German 
Empire, although, of course, in no circumstances can 
Switzerland create a port on anything like the lines of 
Hamburg, but a free area would be a considerable ad- 
vantage, especially with the excellent transit arrange- 
ments Switzerland possesses for transcontinental trade. 

After the war the central powers will use all en- 
deavors possible to recapture their lost ocean and 
export trade, and their free ports will at once commence 
operations, hoping by means of low rates, subsidized 
steamers, Government bounties, and preferential home 
railway tariffs to make a fierce fight in view of ulti- 
mately obtaining success. Without organized effort 
here and combined action by the principal steamship 
and railway companies the competition would be 
unequal, but, given properly equipped free ports in 
this country, regular steamship services and enlight- 
ened railway administration, the fight will be on more 
equal terms. Trade buyers and sellers, commission 
agents and others would be in a position to establish 
themselves here and at other ports. Merchandise 
could be sent direct to importers and received direct 
from exporters. Extra charges would be obviated and 
transportation would be considerably facilitated. In 
the case of large importers and exporters the merchan- 
dise could remain in the port and small or large orders 
could be filled from that port instead of the whole of 
the merchandise being conveyed to an inland port and 
dispatched thence. In the same way, goods for 
export, once a regular market is insured, could also be 
stored at the ports and shipped as ordered. The 
geographical situation of any port which it is proposed 
should contain a free area would require careful con- 
sideration. It must be, if possible, within a port which 
is already one of the main arteries of international 
transport, and it must be easily approached, with a 
good railway service, close to the seaboard, or, better 
still, abutting on the seaboard. There must be room 
without its confines for the erection of the houses for 
the workers, who would be necessary for the handling 
work. There must be ample space for future exten- 
sions and developments, and in America a main point 
was made that the opportunity should be seized to 
build for occupation by the families who would be 



76 



FREE ZONES IN POETS OF THE UNITED STATES. 



employed there homes which would invite occupation 
by being designed with a view to comfort and labor 
saving and providing real home comforts of every 
description, it being recognized that happy homes and 
a contented staff would solve most labor problems. It 
may be interesting to you to know that the houses 
which were projected were in every case to be fitted 
with electric light, central heating and ample bath- 
room accommodations, with electric radiators in every 
room and constant supply of hot water in every part 
of the house. The American home is full of these 
devices, and many of them might be copied here to 
advantage. 

To resume, there must be adequate railway con- 
nections, with extensive platform and yard space, 
plenty of room for making up the trains, and plenty 
of roofed-in loading space, the latest handling 
machinery, hoists, cranes, elevators, and escalators, 
and other devices which would all make for rapid 
clearance; turntables, water tanks, and even revolving 
sheds — in fact, a regular railway terminus on the 
largest scale, with engine sheds and repair shops 
complete to the last bolt. The car reserve sidings 
should be capable of holding a very large number of 
wagons to meet any emergency, and there must be 
plenty of cross-over roads to enable trains to be made 
up quickly, as nothing hinders efficient dispatch as 
much as cramped siding accommodations. Where 
much business is expected, docks both wet and dry 
are a necessity. For special transshipment trade 
special docks and the use of the third side as a feeder. 
The double rails with turntables at the corners would 
eliminate much shunting. As regards quay space, the 
more that can be provided the better. A good wide 
quay, double lines of rails, cranes fitted to the ware- 
houses and long enough to plumb the hold of the ship, 
with adequate chutes and motor transporters would 
make loading and unloading a simple matter. There 
should be ample room for ships to warp out or to go 
right ahead without unnecessary turning or towing, 
which would save much expense. Of course, the more 
the depth of water to be obtained alongside the piers 
or within the docks the better, provided, of course, 
that the quay or docks are protected from the sea swell. 
If there is plenty of depth and surface space the biggest 
ships are then able to come in and berth under their 
own steam and with the least possible delay. As I 
have already mentioned, the harbor equipment must 
be of the best. 

Labor should be in sufficient quantity and quality, 
and should be well remunerated. Port charges 
should be strictly moderate and inclusive, except, of 
course, as regards extra work, such as repacking, 
casing, etc. Further, warehouse rent on goods stored 
would be additional, but I would suggest that free 
storage for a certain period should be allowed. The 
port charges should be based on . a tonnage rate on 
goods imported, exported, or transshipped, and this 
charge would include all the necessary and usual 
operations, in a word, an inclusive rate, so that it 
would be known at once what goods passing through 
this particular port would have to pay. 

The next point is that respecting bunkering and oil 
fuel. A special feature should be made of this, and 
contracts could be entered into by the port authority 
or by the merchants established at the port for 
regular and reasonable supplies of fuel and lubricants. 
The knowledge that this facility exists would be a 



further inducement for steamship companies to use 
the port works for marine engineering and well- 
equipped repair shops would be a further inducement. 
The knowledge that ships could be dry-docked, 
cleaned, and refitted would be the best possible 
advertisement and should induce trade as a matter of 
course. There should be provision for future ex- 
tensions. Buildings should be available for what 
would practically amount to manufacturing in bond, 
although no bond would be necessary. It would be 
possible to import raw material or partly manufac- 
tured goods and then to export the manufactured 
article, free of all customs or other restrictions. 
Duties would only be payable on the merchandise 
actually imported into the country, and this manufac- 
turing department ought to be a considerable source 
of revenue. There should be well-equipped customs 
examination floors, suitable for all kinds of merchan- 
dise. Finally — and this is a question of some con- 
sequence — the question of free ports should be treated 
as a matter of national importance, and all Govern- 
ment departments concerned, and there would be a 
good many, should give this movement their support 
and endeavor to minimize as far as possible the for- 
malities and regulations which, unfortunately, appear 
necessary to any Government supervision. It is a 
matter to consider whether, in the event of a company 
or syndicate having the courage to tackle these pro- 
posals, it would not be fair for the legis^ture to give 
some financial support, until such time as the port or 
ports develop sufficient trade to be self-supporting. 
The various railways and steamship companies 
operating from the ports might possibly be induced 
to help in financing, although they would very prob- 
ably argue that their support would be given by 
helping in the equipment and by providing tonnage 
and by paying their dues. Under capable manage- 
ment, provided the arrangements can be made, pro- 
vided the large railway and steamship companies 
cooperate, provided the Government gives actual 
support, free ports on those lines should command 
success, although not immediately. 



Acts of Congress Granting Privileges Similar to Free 
Zone Practice. 

Free-zone procedure has been practically recog- 
nized in connection with international expositions, 
the most recent example being that of the Panama- 
Pacific International Exposition held at San Fran- 
cisco in 1915. The act authorizing the exposition 
which was approved September 18, 1913, contained 
the following: 

An Act providing for the free importation of articles intended for foreign buildings 
and exhibits at 1he Panama-Pacific International Exposition and for the pro- 
tection of foreign exhibitors. * 

Be it enacted by the Senate and House of Representatives of the United 
States of America in Congress assembled, That all articles that shall 
be imported from foreign countries for the purpose of exhibition, 
and articles and material imported solely for use in constructing, 
installing, and maintaining foreign buildings and exhibits at the 
Panama-Pacific International Exposition upon which there shall 
be a tariff or customs duty shall be admitted free of the payment 
of duty, customs fees, or charges, under such regulations as the 
Secretary of the Treasury shall prescribe; but it shall be lawful 
at any time during the exposition to sell for delivery at the dis- 
cretion of the exposition company any goods or property imported 
for and actually on exhibition in the exposition buildings or grounds, 
subject to such regulations for the security of the revenue and for 



FREE ZONES IN PORTS OF THE UNITED STATES. 



77 



the collection of import duties as the Secretary of the Treasury may 
prescribe: Provided, Thai all such articles when sold or withdrawn 
for consumption or use in the United States shall be subject to the 
duty, if any. imposed upon Buch articles by the revenue laws in 
force at the date of withdrawal; and on Buch articles as shall have 
suffered diminution or deterioration from incidental handling and 
necessary exposure the duty, if paid, shall be assessed according to 
the appraised value at the time of withdrawal for consumption or 
use. and the penalties prescribed by law shall be enforced against 
any person guilty of illegal sale, use. or withdrawal. 

An act approved August 22, 1912, is of special 
interest in this connection. Its purport is clear, and 
its brevity permits printing without explanation, as 

follows: 

An Ail to nrovide for the entry under bond of exhibits of arts, sciences, and indus- 
tries. (Chap. 334, 37 Stat, I... Public, No. 2890 

Be it i nacted by the Senate and Howe of Representative- of the United 
State of America in Congri sa imbled, That all articles which shall 
be imported from foreign countries for the sole purpose of exhibition 
at expositions of the arts, sciences, and industries and products of 
the soil, mine, and sea. to be held in expositions to be held by the 
Merchants' and Manufacturers' Exchange of New York, in the 
buildings in the city of New York owned or controlled by the 
Merchants' and Manufacturers' Exchange, a corporation organized 
under the laws of the State of New York, upon which there shall 
be a tariff or customs duty, shall be admitted free of the payment 
of such duty, customs, fees, or charges, under such regulations as 
the Secretary of the Treasury shall prescribe; but it shall be lawful 
at any time during the exposition to sell, for delivery at the close 
thereof, any goods or property imported for and actually on exhi- 
bition in the exposition buildings, subject to such regulations for 
the security of the revenue and for the collection of import duties 
as the Secretary of the Treasury may prescribe: Proiidid, That all 
such articles, when sold or withdrawn for consumption or use in 
the United States, shall be subject to the duty, if any, imposed 
upon such articles by the revenue laws in force at the date of with- 
drawal: and on articles which shall have suffered diminution or 
deterioration from incidental handling and necessary exposure the 
duty, if paid, shall be assessed according to the appraised value at 
the time of withdrawal for consumption or use: and the penalties 
prescribed by law shall be enforced against any person guilty of 
any illegal sale or withdrawal; Provided further, That nothing in this 
section contained shall be construed as an invitation, express or 
implied, from the Government of the United States to any foreign 
Government, State, municipality, corporation, partnership, or indi- 
vidual to import any such articles for the purpose of exhibition at 
the said exposition. 

Approved August 22, 1912. 

These two enactments have never been attacked 
on constitutional grounds. In connection with these 
acts, rules and regulations were laid down, that have 
protected the revenue by bonding and by continuing 
customs inspection and control. The pertinence of 
the citations in connection with the free zone is found 
in the fact that special legislation has been granted to 
provide for customs immunity in special locations. 



Copenhagen Free Port — Law of March 31, 1891. 

Article 1. Under the direction of the Copenhagen 
port commission a free port for commercial and indus- 
trial purposes will be constructed on the western side 
of the interior roadstead (bay) of Copenhagen im- 
mediately north of Kastel Point, with its correspond- 
ing lands, which in regard to customs and production 
taxes will be considered as foreign territory. 

The free port will have two basins. The one to 
the south will have a width at its base of 780 feet. 
The dike, by means of which this basin will be sepa- 
rated from the interior bay, will be of 3,000 feet, and, 
in so far as possible, wiU be constructed in a straight 
line with a continuous width of 250 feet. 

The territory of the free port will be limited to the 
west by the railroad mentioned in article 2, and will 



be situated in such a way that the branch west of 
the northern port will be on the land belonging to 
the Copenhagen port commission. The free port will 
be connected with the customshousc by means of an 
inclosed wall which will pass through the citadel 
Frederickshavn. 

Lands adjacent to the free port can be included in 
the free port and still continue to be private prop- 
erty, in accordance with a special agreement with the 
company mentioned in article 3 and subject to ratifica- 
tion by the legislative power. 

Art. 2. The secretary of the interior is authorized 
to construct a railroad from the free port to the Copen- 
hagen customhouse, passing through the Vognman 
market until it reaches the Nordsjoelland railroad, 
and a classification station alongside of the free port. 

AH these improvements will be considered from 
every point of view as forming a part of the system 
of State railways. 

The secretary of the interior is equally authorized 
to conclude all the arrangements necessary to obtain 
for the State railways the areas necessary for the 
future construction of a railroad over the existing 
dike at the extreme western end of the free port. 

Art. 3. In order that the installation of the port 
and the railroads mentioned in articles 1 and 2 may 
be carried out, it is necessary that a company with a 
bonded capital of 4,000,000 kroner be formed within 
four months after the promulgation of the law to 
take over the construction and equipment of the port. 
By equipment is understood the warehouses, cranes, 
railroad, etc. It will also defray the expenses of the 
upkeep of the construction work by the port authori- 
ties in the free port. This construction work (referred 
to in art. 1) will be determined in detail by the secre- 
tary of the interior. In exchange for these obliga- 
tions the company will take over the exploitation of 
the free port for 80 years, but the State may terminate 
the concession at any time after 25 years have ex- 
pired. The company will collect the wharfage duties 
of the free port during the period of the concession. 
(See art. 9.) 

The secretary of the interior, who is authorized to 
award the concession mentioned for the period indi- 
cated, shall stipulate in the concession that no other 
concessions will be awarded for the installation and 
exploitation of a free port within the limits of the port 
of Copenhagen during the period of exploitation. 

In the concessions it shall be stipulated: 

(a) That the company must have its principal seat 
of business in Copenhagen. 

(b) That all the directors must be Danish subjects. 

(c) That the company must furnish security, by 
means of a deposit or in any other satisfactory way; 
that the sum of 4,000,000 kroner (allowing a deduction 
for the expenses caused by the formation of the com- 
pany, as well as the loss of the interest during the time 
elapsed since the formation of the company until the 
whole port is open for exploitation, as will be later on 
determined by the secretary of the interior) is at any 
and all times available to carry out the buildings and 
constructions that may be indicated in detail by the 
secretary of the interior in accordance with this law. 

(d) That of the net yearly income one-half is to go 
to the port commission and the remainder to the com- 
pany until it receives a yearly interest of 4 per cent 
on the capital invested in the construction. Any 
resulting surplus will be divided in the proportion of 4 
to 1 between the port commission and the company 



78 



FREE ZONES IN PORTS OF THE UNITED STATES. 



until the port commission also receives for the same 
year an interest of 4 per cent on its total capital 
invested in the improvements made by it, the value of 
the latter to be fixed by the secretary of the interior. 
Should there stiU be a surplus, it will be divided in equal 
parts between the port commission and the company. 

The concession will also stipulate the amounts to be 
set aside for the amortization and reserve fund to be 
created by the company. 

After 25 years of exploitation the State will have the 
right at any time to demand of the company all the 
property and the accumulated reserve fund and appro- 
priate the same for transfer to the port commission. 
In this event the State or the port commission (besides 
taking over the bonded debt of the company, con- 
tracted with the consent of the secretary of the interior) 
will pay to the bondholders the value of the bonds as 
quoted on the Copenhagen Stock Exchange during the 
last 10 years. The average of each year will be ob- 
tained by taking one-half of the total sum of the 
maximum and minimum averages of the quotations 
for each month. Bondholders will at no time be re- 
quired to give up their bonds at less than par nor can 
they demand a quotation in excess of 125 kroner for 
every 100 kroner. 

The company must furnish an annual documentary 
accounting of its expenditures to the Rigsdag for its 
approval. Three years after the opening of the free 
port to exploitation, the secretary of the interior may, 
with the consent of the legislative powers, relieve the 
company from the obligation to invest all the capital 
stock above indicated. In the same way he can grant 
permission to the company (with the consent of the 
legislative powers) to increase its capital over 4,000,000 
kroner, either by increasing the latter or by issuing a 
bonded loan. 

The treasury will guarantee the interest on and the 
amortization of the bonds which the port commission 
will issue for the purpose of obtaining funds for the 
construction of the free port, including the con- 
struction of the customhouse, by setting aside 
for this purpose a fixed and unalterable annual 
contribution. The amortization will extend over a 
period not to exceed 60 years. However, this 
guaranty shall not exceed 8,000,000 kroner. The 
sums which the State treasury will have to ad- 
vance in accordance with this guaranty, must be 
reimbursed by the port commission as soon as pos- 
sible. (This obligation of the port commission can 
not be, however, an obstacle for the collection of pas- 
sage dues on vessels through the port of Knippel, dues 
which were fixed by royal decree of Oct. 30, 1816.) 

Art. 4. The lands and property necessary for the 
installations will be exappropriated in accordance 
with the provisions established by decree of March 5, 
1845, for the exappropriation of lands for railroads. 
However, under this agreement no compensation will 
become due to the city of Copenhagen for exappro- 
priation of its lands or for damages. 

Art. 5. For the installation of railroad communica- 
tions, etc. (mentioned in art. 2), the Federal treasury 
may use a sum up to 905,000 kroner in addition to the 
expenses for exappropriation. 

Art. 6. The lands used for the free port as well as 
the railroad construction above mentioned will be 
free, while used for this purpose, of all taxes and other 
dues which may have formerly been imposed thereon. 
The warehouses and installations constructed on this 



land and pertaining to the company, as well as the build- 
ings for public administrative or exportation offices, wil 
also be free of all taxes generally imposed on buildings 
and of the land tax which is collected by the. city of 
Copenhagen. (This exemption does not include, 
however, the water tax.) The same privilege will be 
extended in the territory indicated to the buildings 
belonging to the railroad. The port commission is 
authorized to issue the bonds indicated in article 3 on 
unstamped paper, be they personal or payable to 
bearer; and the transfer of the personal bonds, or of 
those which may have been converted later on into 
such, may take place without the use of stamps. 
Contracts made with reference to the installations 
mentioned do not require any stamps, and the bonds 
issued by the company can also be extended or trans- 
ferred under similar conditions. Materials which shall 
be employed in the construction of the railroad will 
be admitted free of customs duty. 

Art. 7. The lands of the free port necessary for the 
installation of — — — will be reserved" and at the 
proper time turned over for this purpose on payment 
of the expenses which the port commission may have 
incurred in their purchase; or, in case they have be- 
come to be the property of the port commission by 
filling in, they will be obtained by paying the sums 
which the formation of these lands and their protec- 
tion against the water may have cost in addition to 
the interest corresponding to the period elapsed be- 
tween the conclusion of the improvements and the 
delivery of the lands. 

Art. 8. The secretary of the interior is authorized: 

First, to leave without effect the law of March 31, 
1864, by which a port duty was- imposedon outgoing 
vessels. 

Second, to exempt oversea vessels from the port 
duty established by said law for incoming vessels, on 
cargo transshipped in the port and sent abroad by 
vessel, observing the regulations which may be issued 
in this respect by the secretary of the interior. 

The above facilities shall go into force at the time 
the free port will be opened to traffic by the company 
mentioned in article 3. At the same time the duties 
for incoming vessels will be reduced (see No. 2 above) 
to 30 ore per registered ton of cargo unloaded. If the 
vessel was completely loaded, and unloaded its entire 
cargo, it will pay this duty according to measured 
capacity. If the vessel was not completely loaded or 
does not unload its entire cargo, it will pay the duty 
of the quantity unloaded converted into registered 
tons according to the rates of the customhouse; the 
duty must always be paid, however, in such a way that 
it will never be higher than that which would corre- 
spond to the measured capacity of the vessel. 

The secretary of the interior may decide that instead 
of the port duty above indicated of 30 ore per regis- 
tered ton, an equivalent duty may be paid on the 
articles unloaded, which in such case would have to be 
fixed for every class of articles in accordance with the 
tariff schedule of the customhouse. The reduction 
of the port duties can only take place by process of 
law; but this is no obstacle to the privileges and exemp- 
tions of duties which may already have been granted 
under the authority given to the secretary of the 
interior by the law of March 31, 1864, and which con- 
tinues in force. 

No port duties will be collected in a free port ; in their 
place there will be paid wherever articles go from the 



FREE ZONES IN PORTS OF THE UNITED STATES. 



79 



free port into Danish customs territory the same duty 
as collected in the port of Copenhagen. This duty, 
based upon the rates applied to the article under the 
customs tariff act, must be equal to the port duty. 
The calculation will be based on units of one-tenth of 
a registered ton. If the tariff on any one article is 
inferior to one-tenth of a registered ton, it will never- 
theless pay for the latter amount. 

The tax on vessels under the law of July 4, 1863, 
Chapter V, will cease at the same time that the free 
port is entirely open for exploitation. 

Art. 9. The wharfage tax will be collected in the 
free port in accordance with the rides which may from 
time to time he put into force for the public wharves 
of the port of Copenhagen. 

Art. 10. The budget fixed annually for the free 
port of Copenhagen, as well as all annual accounts, will 
be communicated to the Rigstag. 

The port commission, created by law of September 
30, 1858, will be increased by four members, each sec- 
tion of the Rigstag to elect two. These members will 
hold office for three years. 

As long as the guaranty of the State mentioned in 
article 3 for the loan contracted by the port commis- 
sion remains in force, the port council can not, without 
the consent of the legislative powers, make any fur- 
ther expenses than those necessary for the exploita- 
tion, conservation, and necessary improvement ol the 
port. It can not, moreover, decide by itself on new 
extensions or works to be undertaken. 

Art. 11. Merchandise received for deposit in the 
warehouses of the free port, belonging to the company 
mentioned in article 3, can be sold, mortgaged, in- 
sured against fire, etc., without any further require- 
ment than the delivery or exhibition of samples of the 
merchandise, according to warrants or certificates of 
deposit. More definite regulations will be fixed by 
la-w in regard to these certificates. The secretary of 
the interior will decree all the necessary rules and 
tariffs for the administration of the free port. 

Art. 12. The products obtained in the territory of 
the free port must, on entry into the territory of the 
Danish customhouse, submit to the regulations which 
may at any time be established under the ordinary 
tariff acts. No factories for artificial fertilizer, mar- 
gerine, bookbinder shops or printing establishments, 
can be established in the territory of the free port 
without the consent of the legislative body. 



Charter of the Copenhagen Free Port Joint Stock Co. 

The secretary of the interior, etc. : 

In accordance with the authority granted me by the 
law of March 31, 1891, I approve herewith the charter 
of the Copenhagen Free Port Joint Stock Co., organ- 
ized on the 25th day of April of the same year with 
a capital of 4,000,000 kroner, for the purpose of carry- 
ing into effect the management of the free port men- 
tioned in said law during a period of 80 years (the ter- 
ritory of the free port will be treated as lying outside 
the customs territory of Denmark) ; this charter will 
go into effect as soon as said free port has been con- 
structed by the Copenhagen harbor board and equip- 
ped by the company with the installations for its 
operation; all of these acts to be subject to the fol- 
lowing conditions: 



Article 1. The free port will be constructed by the 
Copenhagen harbor board according to plans approved 
by the secretary of the interior and based on the stipu- 
lations of law No. 44, dated March 31, 1891 (art, 2). 
These plans have been submitted to the company, but 
the harbor board reserves the right to make such modi- 
fications as, by agreement with the company, may be 
found necessary as the work progresses. 

Art. 2. The work to be undertaken by the harbor 
board is as follows: 

Construction of a breakwater and of the new basins in 
the free port, to the depth and with the installations 
agreed upon. 

To prepare the lands redeemed from the sea by the 
harbor board that are to be included in the free port. 

Acquisition and preparation of additional land for 
the free port, including the construction of a mole to 
separate the southern basin of the free port from the 
interior bay; this mole, which is to be 250 to 270 feet 
in width, to be partly in the customs territory and 
partly in the free port. 

The construction of the wharves from the quay of 
this mole toward the interior bay also forms part of 
this work. 

Construction of a canal for flat-bottomed boats be- 
tween the southern basin of the free port and the in- 
terior bay; a fence to separate the territory of the free 
Eort from that of the customhouse; customs guard- 
ouses; streets, sewers, and drains, and drainage canals 
for the streets. The city of Copenhagen is to be con- 
sulted in regard to these various constructions when- 
ever it may be necessary to do so. 

The arrangement of all the streets in the free port. 

The fencing in of the road of communication pro- 
vided by the aforementioned law between the free 
port and the Copenhagen customhouse, the roadbed 
to be macadamized, another road is to be constructed 
at the Government's expense and under the direction 
of the secretary of the interior, the land on both sides 
of the road to be prepared as well as all adjoining 
roads to such an extent as may be necessary for the 
main road proper. 

The inclosure of the territory of the free port 
toward the part called Langlinie, and widening and 
installing therein a harbor for pleasure crafts. 

Art. 3. In order to separate the territory of the 
free port from that of the customhouse, there shall be 
constructed on the mole that separates the southern 
basin from the interior bay two iron fences 6 feet apart 
to permit the passage of the guards. Of these two 
iron fences, or railings, the inside and higher one will 
be placed on the line dividing the free port from the 
customhouse district. On the mole above mentioned, 
instead of a passageway for the guards, an elevated 
road 30 feet wide, inclosed, and from 6 to 7 feet above 
the level of the mole will be built; beneath there will 
be constructed two passages between the free port and 
the customhouse district alongside of the wall of the 
quay and facing the interior bay. This passageway 
will be made a regular road in all its width. 

Streets and sewers will be constructed according to 
plans which will be furnished by the secretary of the 
interior. 

Art. 4. The expenses necessary for the aforemen- 
tioned work will be defrayed by the harbor board from 
port funds supplemented by a contribution from the 
state for the customhouse fence, and by a contribu- 
tion by the free port company — established by act 



80 



FREE ZONES IN POETS OP THE UNITED STATES. 



of November 30, 1891, and which will be approxi- 
mately 80,000 kroner — for the construction of the 
passageway indicated in article 3. This elevated 
promenade over the mole will permit the company to 
construct below the same storehouses, of which they 
will have the exclusive use. 

Art. 5. The improvements to be made by the free 
port company (the southern part of which will be 
preferably given over to commercial purposes, while 
the northern part will be especially devoted to indus- 
trial purposes and the deposit of large and bulky 
merchandise) are: 

Construction of roads for the distribution, transpor- 
tation, and deposit of merchandise in the territory of 
the free port and of its junctions with the railroads 
which, in accordance with article 2 of the above- 
mentioned law and under direction of the secretary of 
the interior and at the expense of the Government, will 
lead from the free port to the customhouse of Copen- 
hagen and to the railroad of Nordjoeland, passing 
through the market of Vogman, and for a distributing 
station alongside of the free port. 

Consolidation of the land on the aforementioned 
railroads up to a distance of 2 feet on each side of the 
cut. 

Construction of water mams, etc., with all the 
branches pertaining thereto, excepting the sewers and 
canals of the streets mentioned in article 2. 

Construction of warehouses and storerooms, such as 
those mentioned in article 4, as well as the buildings for 
the customhouse, administration, etc. 

Installation of drains and other machinery neces- 
sary for the service of the free port as well as the in- 
stallation of a power plant. ' 

Installation of electric-lighting system. 

Providing closed launches. 

Art. 6. The improvements for the equipment of the 
free port will be undertaken by the company in the 
manner, extension, and time which may be indicated 
by the secretary of the interior. However, the secre- 
tary can not demand that the storerooms beneath the 
elevated road of the eastern mole should cover an ex- 
tension of more than 800 feet. In order to meet the 
expenses which these improvements may involve the 
company may, if necessary, employ all its capital stock 
(4,000,000 kroner), less a reduction of 3 per cent 
(amounting to 120,000 kroner), which has been ad- 
judged by the company to the Danish Mortgage and 
Exchange Bank as a commission for the formation of 
the company, and the amount of interest lost by the 
company during the time elapsed since its formation 
until the free port is open for use and the exact amount 
of which will be determined by the secretary of the 
interior. 

The bond prescribed by the above-mentioned law 
(art. 3, No. 3), which provides that all the capital stock 
with the exception of the above-mentioned reduc- 
tions should be at all times available for the construc- 
tion of the buildings and equipment mentioned and as 
provided for by the secretary of the interior, has been 
furnished by the company and certified to by the 
above-mentioned bank in a letter written to the secre- 
tary of the interior under date of April 1 1 of last year. 

Art. 7. The secretary of the interior will submit 
annually to the Rigstag for its approval a detailed 
statement of the amount which the company may have 
used of its capital stock. 

Three years after the opening and use of the free 
port the secretary of the interior may, in accordance 



with article 3, second last paragraph, of the law above 
mentioned and with the approval of the legislative 
power, relieve the company from the obligation of 
using its entire capital stock. 

Art. 8. All the designs and plans for buildings and 
equipment to be constructed by the company must be 
inspected and approved by the secretary of the inte- 
rior, but such inspection can not be made by the Copen- 
hagen harbor board. 

Art. 9. Concerning the joint accounts between the 
state railway and the free port company, in regard to 
the construction of the junctions connecting the railway 
in the free port with those of the state, and with the 
state railway leading to the Copenhagen customhouse, 
and eventually with those railways which the state 
may construct over steam floats in the free port (see 
art. 28), these shall be prepared by special arrange- 
ment approved by the secretary of the ulterior. 

The state reserves the right to construct and use a 
direct route to pass through the territory of the free 
port, beginning at the distribution station near the 
quay wall of the dock until it reaches the wall commu- 
nicating between the free port and the customhouse. 

Art. 10. As soon as the improvements to be made 
by the port authorities are sufficiently advanced so 
that construction on the buildings mentioned in 
article 5 may be begun, the harbor board will author- 
ize the company to start work thereon. The same 
action will be taken for the construction of buildings 
to be erected by private parties for industrial use. 
The company should employ the greatest activity 
possible on its construction so that it will in no way 
interfere with or delay the buildings to be erected by 
the harbor board. 

Art. 11. The secretary of the interior will determine 
the date on which the free port will be open for use 
and communicate the same to the company for their 
compliance therewith, and will at the same time 
enforce the provisions of article 8 of law No. 44, 
dated March 31, 1891. 

Art. 12. The free-port company will have its prin- 
cipal place of business in Copenhagen. The secretary 
, of the mterior is authorized to name one or two of 
the directors of this company who may number three 
or more, respectively. All the directors must be 
natives and Danish citizens. 

The provisional statutes of the company in force 
during the period of construction as well as the final 
ones, and the modifications which may be introduced 
therein, will not be valid unless ratified by the secre- 
tary of the interior. 

Art. 13. In accordance with the resolution of the 
secretary of the interior (examine, however, article 34 
hereinafter stated) the company has the right to 
exploit the free port during 80 years from the date of 
its opening; the company, however, is under obliga- 
tion to carry on this exploitation in such manner as 
to attain the purposes of a free port. The secretary 
of the interior will approve all contracts of lease 
which may be made between the company and private 
parties, as well as all tariffs (including the rates for 
electric lighting and motor power which the company 
may furnish to private parties within the free port) 
and the rules and regulations governing the manage- 
ment of the free port. These tariffs and regulations 
can not be suspended without the consent of the 
secretary except in very urgent cases when approval 
must be obtained as soon as possible thereafter. 
The company must permit merchandise deposited in 



FREE ZONES IN PORTS OF THE UNITED STATES. 



81 



open or inclosed spaces within the free port leased 
out to private parties, and which it was impossible 
to receivo in the warehouses of the company, to bo 
prepared or manipulated in any way that the proprie- 
tors or their representatives see fit. The company 
shall, at the request of the interested party, receive 
goods on deposit and issue therefor certificates of 
deposit and warrants which may be transferred with- 
out the necessity of a stamp and under such condi- 
tions as will be more definitely provided for by law. 
Every person has a right, upon payment of stipulated 
sums and by observing the regulations in force, to 
make use of the installations in the free port. The 
company will submit to such regulations of the secre- 
tary of the interior as he may make for the purpose 
of obtaining statistical information in regard to the 
traffic of the free port. 

The appointment and distribution of the officials 
and laborers necessary for the management of the 
port will be made by the directors of the company, 
who will also make all regulations in regard to the 
service. 

Art. 14. The secretary of the interior will deter- 
mine the amount to be paid for the use of the rolling 
stock of the state railways over those of the free port. 

Art. 15. The buildings and installations indicated 
in articles 5 and 6 will be kept in good condition by 
the company during the period of the concession; 
they also must be kept insured for their total value. 

All installations, etc., indicated in articles 2 and 3 
(streets and buildings for recreation, unless managed 
by the city of Copenhagen), will be kept in good 
condition by the harbor board against reimburse- 
ment by the company of the corresponding expenses 
as approved by the secretary of the interior. How- 
ever, the expenses for the upkeep of the quay walls 
of the eastern mole as well as those for the upkeep of 
the breakwater will be borne by the harbor board. 
The city of Copenhagen, in accordance with the 
agreement made with the harbor board, takes charge 
oi the repairs of the sewers and drains mentioned in 
article 2. The company shall not obstruct the execu- 
tion of such repairs. 

Art. 16. The directors of the company will furnish 
each year, for the approval of the secretary of the 
interior, a statement of the revenues and expenditures. 
The amendments which the secretary may make in 
such statement must be observed by the company 
which can not, without the consent of the secretary, 
incur any expenses that do not appear in the approved 
budget, nor exceed the expenses indicated therein. 

The revenues will consist principally of: 

(a) Rents paid by public institutions for sites or 
buildings. 

(b) Rents derived from the leasing of inclosed or 
open storage places, offices for samples and other, etc. 

(c) Fees for the use of cranes and other apparatus 
of the free port. 

(d) Fees for transportation and manipulation of 
cargoes. 

(e) Rents of sites for industrial establishments. 
(/) Revenues from the use of electric fight. 

(g) Revenues from the use of motor power. 
(h) Revenues from the use of the quay. 
(■£) Revenues from the interest on the capital em- 
ployed by the company. 
Q) Other revenues. 

92621—19 6 



The expenses of administration will consist princi- 
pally of : 

(a) Salaries and other emoluments to directors, 
officials, and workmen of the company. 

(b) Office expenses. 

(c) Expenses for management, repairs, and insur- 
ance of the buildings, warehouses, and other equipment 
of the company. 

(d) Reimbursement to the harbor board for repair 
expenses on the constructions made by it in the free 
port (see art. 15). 

(e) Tax for the use of the wharf. 

(/) Taxes for the management, if there be any. 

(g) _ Reimbursement to the harbor board of the 
additional expenses incurred for police surveillance. 

(h) Other expenses and charges that may arise. 

Art. 17. The directors of the company shall pro- 
mulgate regulations for accounting. The annual re- 
turn, which must be made within four months after 
the close of the fiscal year, shall be reviewed by two 
auditors of which one shall be chosen by the secre- 
tary of the interior and one by the bondholders of 
the company. These auditors will he paid a yearly 
fee out of the funds of the management, the secretary 
of the interior to fix the amount to be paid to the 
auditor chosen by him. After review by the auditors 
the secretary of the interior will render a decision, 
after which the bondholders will be paid their divi- 
dends. The auditors shall have the lnght to examine 
the books, inspect the cash, and call for information 
in regard to the management at any time. 

Art. 18. The secretary of the interior may also 
call on the company for any information in regard to 
the management of the free port. 

Any party which may consider itself prejudiced 
by any action of the company may file a complamt 
with the secretary, who, after hearing both parties, 
will render a decision. 

Art. 19. Merchandise which leaves the free port 
and enters into the Danish customs territory must 
submit to the rules as well as to the tariff schedule 
then in force. In accordance with article 4, law No. 
44 of March 31, 1891, there can not be installed within 
the territory of the free port and without the previous 
consent of the legislative power factories for the 
manufacture of artificial manures, or margarine, nor 
bookbinding, or printing industries for books, news- 
papers or music. The consent of the Secretary of 
the Interior is necessary for the establishment of any 
other industry, as well as for retail stores, within the 
territory of the free port. The Secretary shall not, 
however, oppose any difficulties whenever the articles 
manufactured or sold are for export or for provision- 
ing vessels. 

The use of the free port is subject to State control 
in order to protect the interests of the customhouse. 
Special care will be taken to prevent the consump- 
tion of dutiable articles within the free port, unless 
such duties have been paid. 

Art. 20. The rents to be paid by Government 
institutions to the company for quarters within the 
territory of the free port will be determined by the 
secretary of the interior. 

Art. 21. The police of the port of Copenhagen 
will have authority over the free port (the free port 
forming part of the port of Copenhagen) whenever 
necessary, and in the exercise of this authority will 



82 



FREE ZONES IN PORTS OF THE UNITED STATES. 



pay special attention to the requirements to the free 
port company. 

Art. 22. The bonds issued by the company may 
be extended or transferred without the usual stamps, 
and the contracts which the company may enter into 
for construction work are also exempt from- the use 
of such stamps. 

Art. 23. All warehouses and equipment belonging 
to the company, the buildings for the offices and 
management of the company, and for the offices of 
the Government within the territory of the free port 
will be exempt from all federal and local area taxes 
(land taxes) ; however, the water tax is not included 
in this exemption. 

Art. 24. In accordance with law No. 44 of March 
31, 1891 (art. 8), no port fees will be collected within 
the free port; articles leaving the free port for entry 
into the Danish customs district pay to the harbor 
board a tax which will be equal to the tariff rate placed 
upon the article by the regular customs tariff act, 
and equivalent to the port tax. This tax will be 
calculated upon the basis of one-tenth of a registered 
ton; even if the rate upon any one article does not 
reach the amount usually paid for one-tenth of a 
registered ton, payment will be made on this basis. 

Art. 25. The wharfage dues in the free port will 
be the same as those paid at all public wharves in 
Copenhagen. They will be collected by the com- 
pany under the control of the harbor board and de- 
posited in the treasury of the company. 

The wharfage dues paid by vessels anchoring near 
the customhouse territory on the east side of the 
eastern mole in the southern basin will not be paid to 
the company. The secretary of the interior will 
establish rules for the division between the company 
and the harbor board of the wharfage dues paid by 
vessels which during their stay in the port of Copen- 
hagen may have used either the wharves of the free 
port or any other public wharves within the port of 
Copenhagen. 

Art. 26. Vessels to which an anchoring place 
may have been assigned in the customhouse district 
on the eastern flank, in front of the storehouses con- 
structed by the company or in front of the passage- 
ways beneath the elevated road, will be obliged, un- 
less they are discharging articles for the construction 
of the free port or loading similar articles, to vacate 
their places in favor of those vessels which come to 
load or unload articles for or from the construction 
of the free port. 

No cargo can be placed on that part of the dock 
situated between the wharf wall and storerooms or 
passages of the company that would obstruct the 
traffic of the moving cranes constructed by the free 
port company. It is also prohibited to place such 
articles on the wharf in such a manner as to impede 
the traffic alongside of the wall. 

No articles to be loaded or unloaded can stay on 
the wharf longer than sunset of the day following that 
on which the"y were placed there for loading or were 
unloaded, unless there be no room for them in the 
warehouses of the company. 

Art. 27. The free port company is not required to 
contribute in any way to the expenses occasioned for 
custom surveillance within the free port, whether such 
surveillance be by land or by sea. The Government 
will maintain, without any expense to the port com- 
pany, an office for the liquidation of customs duties in 



the customhouse building located within the territory 
of the free port; this building, however, will be con- 
structed by the port company. Should either the 
company or any private party demand any special 
surveillance of their interests such service will be paid 
by the interested party according to the general rule 
covering such cases. 

Art. 28. The lands situated to the north and the 
south within the limits of the free zone and which in 
the port project have been set aside for steam winches 
may in the meanwhile be utilized by the company; 
they must, however, be available at any time to be 
used as originally intended and must be returned in 
the same condition in which the company received 
them. 

Art. 29. The yearly net proceeds of the free port 
will be apportioned as follows: 

First, 5 per cent of the surplus will be set aside in 
such securities as the secretary of the interior may 
determine to constitute the reserve and improvement 
fund; that is to say, to cover extraordinay expenses 
and for the renewal of equipment or major repairs 
which may become necessary, etc., and which, in ac- 
cordance with article 15 Of this charter, should be 
made at the expense of the company. This fund may 
only be used during the period of the charter and with 
the approval of the secretary. 

Second, of the remaining surplus the port company 
and the harbor board m ill each receive one-half until 
the share of the port company represents 4 per cent 
on the capital invested in construction work during 
the year for which the account refers to. Any re- 
maining surplus will be divided in the proportion of 
4:1 between the harbor board and the company until 
the harbor board, in the same manner and for the 
same year, has received 4 per cent on its capital in- 
vested on constructions within the free port. Should 
there still be a surplus it will be divided in equal 
shares between the harbor board and the company. 

The amount of the capital to be invested by the 
harbor board will be determined by the secretary of 
the interior under the following conditions: 

1 . The account will include : 

(a) The value of the lands redeemed by the harbor 
board and which enter the free port ready for use — 
4,100,000 kroner. 

(b) The value of the wooden quays (Bolvoerker) in 
the northern port, and which will be included in the 
free port — 2,350 feet, at 140 kroner per foot, 329,000 
kroner. 

(c) All the expenses which the harbor board has 
had or will have, under the provisions of article 4, and 
which are not related to the aforementioned lands (a), 
wooden quays (b), adding thereto the loss on account 
of interest. From this total there will be deducted, 
however, the expenses incurred by the harbor board 
in the construction of the east end of the eastern dike 
in the southern basin, which is to be used as a wharf 
for vessels larger than those which heretofore have 
been able to use the same; in other words, all expenses 
that are necessary to deepen the front of the mole in 
order to increase the height of the wooden quay under 
water and also for the construction of a macademized 
roadbed on said mole. 

(d) The loss in the quotation of the bonds issued by 
the harbor board for the construction of the freeport 
and the commission paid for the issuance of said 
bonds. 



FREE ZONES IN PORTS OF THE UNITED STATES. 



83 



2. Of the total amount of these respective sums 
there will eventually he made a reduction of the values 
of the lauds (by taxation) which have been set aside 
for the construction of the steam winches. This re- 
duction will take place on the day the land will he 
turned over for the purpose mentioned. 

Art. 30. The payment of the surplus to the port 
authorities (in accordance with art. 29) will be made 
at the time dividends are paid to bondholders. 

Art. 31. The secretary of the interior can permit 
the port company to increase then capital over 
4,000,000 kroner, by issuing more bonds or by raising 
a loan, only with the consent of the legislative powers. 

Art. 32. If circumstances make it desirable, there 
may be included within the free port land belonging 
to the harbor board situated to the north of the free 
port and including the walls of the old wharves ; and 
the use of this land will then be confided, by special 
arrangement, to the free port company. In order to 
obtain the incorporation of this land the free port 
company must before the expiration of 10 years since 
the opening of the free port file a written request and 
prove that at least three-fifths of the lands in the 
northern part of the free port as indicated in article 28 
have been made productive. The port authorities 
may, after obtaining this land, lease the same for a 
maximum period of 10 years. The lessee will at all 
times be bound by this period; in case the land is 
incorporated in the free port the right is reserved to 
the free port company to evict the lessee at the time 
of the incorporation, although the lease may not have 
expired. The eviction will, however, be compensated 
by an indemnity paid by the company and agreed 
upon by experts. 

By special arrangement between the free port com- 
pany and the respective proprietors, and subject 
to the legislative approval, lands adjacent to the free 
port may be included therein. They will continue 
to be private property, however. 

Art. 33. During the life of this charter no others 
can be granted for the establishment and management 
of a free port within the port of Copenhagen. 

Art. 34. Twenty-five years after the opening of the 
free port the State will be authorized to demand at 
any time from the free port company the transfer of 
all its property as well as of the reserve fund, or that 
the same should be transferred to the harbor board. 
If this should happen the State or harbor board will 
assume responsibility for the bonded loan issued by 
the company with the approval of the secretary of the 
interior, and will furthermore pay to the bondholders 
the value of their bonds according to the average 
quotations which they may have had on the Copen- 
hagen Stock Exchange during the last 10 years. The 
average for each year will be arrived at by taking one- 
twelfth of the total of the average highest and lowest 
quotation for each month. However, no bondholder 
will be required to have his bonds redeemed at less than 
par; on the other hand, they can not demand reim- 
bursement at a higher premium than 125 per cent. 

Art. 35. If the company should violate in any way 
any of the obligations herein mentioned, the secretary 
of the interior may have the charter annulled by 
judicial sentence, and in such case the company will 
be obliged to vacate the territory of the free port 
within a period fixed by the secretary of the interior 
and remove its buildings or other improvements or 
turn them over to the Government for the value of the 
material as appraised by experts. 



Art. 36. With the exception noted in preceding 
article No. 35 the secretary of the interior reserves the 
right to decide on every question subject t<> interpre- 
tation, so that such questions can only he taken before 
the courts by agreement with the secretary. 

Art. 37. This charter can not be transferred to any 
other party without the consent of the secretary of the 
interior. 

Department of the interior, April 27, 1892. 

Ingerslev. 



Rules for the Administration of the Free Port of 
Copenhagen. 

1. There is reserved to the anonymous free port 
company the execution of all works in connection 
with transportation, packing, etc., of the merchandise 
which may be deposited in the free port outside of the 
lands and buildings which have been leased. The 
company may therefore prohibit other parties to 
carry on work of this nature without its consent. It is 
not necessary, however, to obtain the permission of 
the company to carry on transportation by hand or 
on ordinary carts — merchandise to be loaded or 
unloaded merchandise not included — over the territory 
of the free port. Nor is this permission necessary 
for the crews of the vessels anchored within the free 
port in order to carry out such work as may be as- 
signed to them. 

2. For all work carried out by order of the company 
as well as for depositing packages in the warehouses 
or in open spaces belonging to the company, the 
interested parties will pay the fees according to the 
tariff promulgated by the secretary, which will also 
contain the rates referring to rents either for a fixed 
period or for an indefinite period and which will be 
subject to abrogation by giving a notice in advance 
for the period of da,js indicated therein. These 
general rates are only applicable to the open or closed 
depositories within the free port, while in regard to 
other leases and especially in regard to leases of lands 
for factory purposes special arrangements will be 
made in each case with the company and submitted 
for the approval of the secretary. 

3. For each lot of merchandise which may be the 
object of the manipulation before mentioned (includ- 
ing transportation), the interested parties must present 
to the company — besides other necessary documents, 
such as manifests, etc.— in the first place, a statement 
which will contain a declaration as to the class of 
merchandise, its rate or measurement, marks, number 
of pieces and destination, and in the second place, the 
order specifying the nature of the work to which the 
merchandise is to be submitted, and in case of insur- 
ance the statement should state the sum and the nature 
of the risk. (See art. 7.) These two documents 
will be signed by the party giving the order or by the 
person which the interested party may have indicated 
to the company as being authorized to sign for him. 
Blank forms for this class of documents will be sold 
in the offices of the company. 

4. When the company, after investigation, has found 
no reason to refuse execution of the order and has 
received the documents above mentioned and for 
which it will issue receipt on request, it will be obliged 
to execute the order as soon as possible. 

5. For the transportation by railroad — transporta- 
tion which will be carried out by the company — the 



84 



FREE ZONES IN PORTS OF THE UNITED STATES. 



same rules will apply as govern merchandise carried 
on State railways, excluding, however, the regulations 
referring to rates and taxes and including such 
modifications as circumstances mav demand. 

For any other transportation which the company 
may carry out, the rules and regulations now in force 
in regard to land and maritime transportation will be 
applied. For the storage of merchandise by the com- 
pany the rules and regulations hereafter stated in 
paragraphs 15 to 25 will be applicable. 

6. The company will always msure the merchandise 
whenever requested to do so and whenever it is 
possible against fire or other damage (par. 3) with the 
insurance companies whose names will be always 
on file in the offices of the company. 

The free port company is not required to accept 
any insurance against fire for a period of less than 
three months. It is not responsible for any losses 
which may occur by failure of an insurance company 
to make payment; this loss will be distributed among 
all the parties having suffered damages in proportion 
to their respective losses and to the total of the com- 
pensation obtained. Whenever msurance on mer- 
chandise is requested from the free port company the 
latter is authorized instead of the petitioner to deter- 
mine the conditions of insurance and to eventually 
settle all matters between the insured parties and the 
insurance company. The insurance will be considered 
valid as soon as the company has notified the insured 
party that the insurance has been arranged. No 
increase of the amount insured can be made after a 
request for insurance has once been filed with the 
company. 

7. Unless otherwise provided for in these regulations 
the company may ask payment in advance for any 
services which it may render. It is especially pro- 
vided that whenever the company brings suit against 
the right of the interested party in regard to mer- 
chandise which may have passed through the free port 
it has the right that the necessary sum for the prose- 
cution of this suit be deposited with it. 

8. The company is authorized to establish the rules 
governing the circulation within the free port, admis- 
sion to its buildings, etc., as well as to take such steps 
as may be necessary to make these rules effective. 

9. The company shall keep the regulation books for 
accounting purposes. (See especially par. 12.) 

10. The company shall prohibit all its officials, em- 
ployees, or workmen to receive under any form pres- 
ents or tips in connection with their duties in the free 
port and will see that this prohibition is duly carried 
out. 

11. The contracts for the lease of storerooms and 
sites will be drawn up in accordance with the forms 
annexed to these regulations. 

12. The lessees will be obliged to keep deposit 
books, in accordance with commercial rules, for the 
merchandise which may be deposited in the free port. 

The lessees of buildings for carrying on retail com- 
meice and for industrial purposes and who may have 
been subject to certain restrictions at the time thd 
contract was made in regard to their business in the 
free poi t, whether such restriction applies to the class 
of merchandise or to the way in which the same 
should be disposed of, are for this reason compelled 
to submit to the regulations for control which the 
company may adopt for the purpose of carrying out 
the conditions of these contracts. It is especially 



provided for that the retail merchants can only sell 
those articles which are exclusively used for the pro- 
visioning of vessels, and upon a request therefor hav- 
ing been received from the shipowner or his repre- 
sentative. This request, on which the receipt of the 
article must appear, will be filed in the books of the 
retail merchant. 

The lessees can have work earned on in the quarters 
leased to them by their own workmen who must be 
provided with identification plates which the com- 
pany will furnish. When a workman stops working 
for one of these lessees he must deliver his identifica- 
tion plate to the lessee who will return same to the 
company. 

13. No quarters or lots, or any parts thereof, can 
be subleased without previous written consent of the 
company. 

14. The lessees can not use within the free port any 
other lights or motor power except that furnished by 
the company at a fixed rate. 

15. The company may refuse to receive articles 
for storage whenever thera is sufficient cause for such 
refusal. 

16. The company has the right to verify by re- 
weighing the weight of any mexchandise as declared 
in the documents. In case any merchandise has been 
declared at less than its weight the company will be 
entitled to receive the fees for the undeclared weight 
plus the expenses which the reweighing may have 
occasioned. 

The company has also the right to open any pack- 
ages or containers to verify whether the articles have 
been correctly declared. If the declaration of the 
contents appears to have been correct the company 
will have to bear any expense connected with the 
opening of the packages. On the other hand if 
declaration of the contents was incorrect the 
terested party will have to bear such expenses. 

17. For any merchandise placed in storage 
company will issue at the request of the interested 
party and subject to the payment of the stamp tax, 
either a certificate of deposit and guarantee as pro- 
vided for in law No. 34 of March 30, 1894 or a cer- 
tificate of receipt. Such certificate will be made out 
in accordance with the forms annexed thereto. 

18. At the request of the interested party the com- 
pany must state in these certificates of deposit the 
amount of the expenses to which they will be subject 
during the period indicated in the certificate as they 
will appear from the books of the company. 

19. When such certificate of deposit has been issued 
for a lot of merchandise they may be later on returned 
with their respective receipts and new certificates 
may be demanded on the payment of the fee of 50 
ore. 

When partial certificates are desired corresponding 
to a fraction of a lot of merchandise and for which 
certificates have already been issued, these certificates 
may also be extended upon the payment of a fee of 50 
ore for each new certificate, and upon condition that 
the older certificates be returned together with their 
respective receipts. 

20. The company has the right to have at its own 
incentive and at the expense of the interested party 
carried on such work as may be necessary for the 
preservation of the stores of merchandise. 

21. Stores of merchandise will be received after the 
issuing of the certificate of deposit and guaranty, 



the 
in- 

the 



FREE ZONES IN PORTS OF THE UNITED STATES. 



85 



which has boon issued in accordance with tho rulos 
laid down in tho law of March 30, 1894. In the same 
manner they will be returned upon the surrender of 
such certificates which must have thereon a note 
canceling the certificate or bo provided with a receipt 
signed by tho depositor or his representative according 
to the forms attached to those regulations. The 
company may deliver samples of stores of merchandise, 
but only against the receipt thereof having been noted 
on the certificate of deposit, and in case a certificate 
of guaranty was issued, a similar note must be made 
thereon. 

22. The depositor is personally responsible for stor- • 
age expenses which may be incurred. Any interest 
which may eventually accrue from the amount. depos- 

. ited in favor of the company and mentioned in the 
law of March 30, 1894 (par. 8), will bolong to the com- 
pany. The company is required to liquidate upon 
request any account referring to stores of merchandise. 

23. The company will keep books in detail for every 
deposit made; special books will be kept for the cer- 
tificates of deposit and guaranties which it may issue 
and in which books the texts of the certificates will 
be transcribed literally, including all notes that may 
have been made thereon after their issuance; all this 
in accordance with paragraph 7 of the law already 
mentioned. 

24. Whenever the balance in favor of the company 
for storage, transportation, preservation, and insur- 
ance of stored merchandise will exceed three-fourths- 
of the value placed thereon by experts named by the 
tribunal of commerce and navigation, or if such mer- 
chandise or part thereof is threatened with deteriora- 
tion, the company will have the right to sell all or part 
thereof within eight days after notice of such impend- 
ing action has been published — three times in the Bor- 
lingske Tidende or posted at the Copenhagen Stock 
Exchange, and the interested party has been notified 
by registered mail at his domicile or place of business — 
that such sale will take place within eight days after 
the publication of such notice. Should there be any 
balance after all the claims affecting this merchandise 
have been settled, the company will turn the balance 
over to the interested parties. If this balance has not 
been claimed within 10 years after the sale, it will 
become the property of the company. 

25. The responsibility of the company for merchan- 
dise deposited in its warehouses is fixed by the law of 
March 30, 1890, for all cases in which a certificate of 
deposit and guaranty has been issued. 

In case the company has only issued certificate of 
receipt, its responsibility for the custody and delivery 
thereof will be determined by the general rules of the 
laws referring to custodianship. In this case respon- 
sibility will cease whenever the damage be of such a 
nature that it might have been discovered through 
ordinary examination, and if the interested parties 
had not called the attention of the company to the 
damage before removing the merchandise or had the 
same inspected legally in any other way. 

The present regulations to remain in force until 
further orders. 

Department of public works. October 19, 1894, 



Law Providing for a Commission to Select a Site for 
the Free Port in Lisbon, Portugal. 

[Translation.] 

In the name of the Nation, the Congress of the 
Republic decrees and I promulgate the following law: 

Article 1. Within the period of 60 days from the 
promulgation of this law the Government will appoint 
a technical commission to study the best site for the 
establishment of the free port in Lisbon. 

Having chosen the site, the commission shall elabo- 
rate a complete plan of the works, giving all the details. 

Art. 2. As soon as the commission to which article 
1 refers presents its work, and this is approved by the 
council of ministers, the Government will adjudicate 
by competition, announcement of which will be made 
180 days before, the construction and operation of the 
free port of Lisbon, the concession not exceeding 60 
years. 

In the free port can be loaded, unloaded, or be 
deposited free from duties any kind of merchandise 
except oil (olive) and wine. 

It is also permitted within the free port to perform 
all refining processes, packing, mixing of merchandise 
and its transformation into other commercial prod- 
ucts in factories or other commercial establishments. 

Art. 3. The adjudication to which article 2 refers 
shall be in accordance with the following stipulations : 

First. That the free port shall consist of quays, 
wharves for loading and unloading, warehouses, and 
all the necessary barriers for the fiscal service, accord- 
ing to the plan approved by the Government. 

Second. That the Government shall give to the 
concessionary the permission to operate and run the 
free port during 60 years without subvention or guar- 
antee of interest, but ceding freely the necessary 
lands, if they belong to the State, and guaranteeing 
the expropriation, if the lands belong to others. 

Third. That no person or company shall be ad- 
mitted to the competition who has not previously 
deposited in the "Caixa Geral dos Depositos" the 
sum of 50,000 escudos (about $47,500) in cash or in 
bonds of the public debt according to market value. 

Fourth. That the concessionary must, within 15 
days from the date of the adjudication, deposit 5 per 
cent of the total amount calculated as necessary for 
the works, in cash or in bonds of the public debt 
according to market value, on which he shall receive 
the interest, if the deposit is in form of bonds, or 
the interest stipulated at the "Caixa Geral dos De- 
positos," if the deposit is in form of money. Said 
money deposit can not be removed until the works 
are completed and are accepted as conforming to the 
plan presented at the competition. 

Fifth. That all the works and buildings will serve 
as a guarantee to the State for the exact fulfillment 
by the concessionary of all of the obligations con- 
tracted by him, in which is included the payment 
resulting from the expropriations for public use, to 
which stipulation No. 2 refers. 

Sixth. That in the works Portuguese laborers shall 
have the preference, and that the period of time from 



86 



FREE ZONES IN PORTS OF THE UNITED STATES. 



the definitive signature of the contract within which 
the works must be finished and in perfect operation 
will be stated in the conditions of the competition, 
the concessionary paying a fine of 100 escudos (about 
$95) a day for every day elapsing from the end of the 
agreed-upon period to the completion of the works. 

Seventh. That the vessels and goods, taken as a 
whole, which profit by the free port shall continue 
subject to the fiscal law regarding existing free gen- 
eral warehouses. 

Eighth. That the vessels simultaneously transport- 
ing merchandise from or to the free port, or any other, 
shall enjoy the benefits of the preceding stipulation. 

Ninth. That the rates on loading, unloading, and 
storing shall be fixed by the Government in the 
program of the bids, and those of refining and all 
others shall be fixed by agreement between the Gov- 
ernment and the concern undertaking the work, all 
alterations in these rates to be made only by agree- 
ment. 

Tenth. That within the inclosure of the free port 
night work will be permitted for coming alongside, 
loading, and unloading; as a rule, however, only 
employees engaged in this kind of work and in vigi- 
lance work can pass the night there. 

Eleventh. That inside of the inclosure of the free 
port retail trade is prohibited, and no one is granted 
the right to consume products which have not come 
from the fiscal zone. 

Twelfth. That the concessionary must preserve 
the wharves, quays, warehouses, and their depend- 
encies in good condition, obligating himself to restore 
them freely to the Government at the end of the period 
of concession. 

Thirteenth. That the movable material, also pre- 
served in good condition, shall be, when turned over 
to the State, paid for according to its value in accord- 
ance with the appraisement made by two experts 
appointed by the Government, two by the conces- 
sionary, and one by the supreme court of justice. 

Fourteenth. That the undertaking, for all legal 
purposes, must be considered Portuguese and subject 
only to the jurisdiction of the Portuguese courts, all 
questions or doubts arising between the concessionary 
and the State concerning the execution of the present 
law and the respective regulations which shall be 
published later being, in the first place, submitted to 
arbitration as regulated by the Code of Civil Procedure. 

Fifteenth. That the gross profits of the operation, 
over and above the annual installments necessary for 
amortization, during the length of the concession, 
of the sum at which the execution of the works was 
calculated, must be divided equally between the 
Government and the concessionary. 

Sixteenth. That the award of the bids shall be 
based upon the rate of interest in relation with the 
annual installment referred to in the preceding stipu- 
lation, the concern offering the lowest rate being 
given the preference. 

Seventeenth. That the enterprise shall be free from 
all direct taxes, excepting the industrial tax and the 
property tax, and likewise all material and machinery 
necessary to the construction of the port works shall 
be exempt from customs duties provided they are 
not manufactured in Portugal. 

Art. 4. The preceding stipulations being respected, 
preference is based upon the following: 



1. The shortest number of years spent in the 
construction of the free port, in order that it be put 
into complete operation. 

2. The shortest number of years for the operation 
of the port by the concessionary. 

Art. 5. The Government has authority to regulate 
the hygienic conditions and the police dispositions 
whi:h have to be observed in the installation of any 
industry within the port. 

Art. 6. The Government will make all the regula- 
tions necessary to the fulfilment of this law. 

.Art. 7. All legislation to the contrary is hereby 
revoked. 

The minister of finances and of fomento order this 
to be printed, published, and circulated. 

At the palaces of the Government of the Republic. 
June 13, 1913. 

Manuel de Arriaga, 

Afonso Costa, 

Antonio Maria da Silva. 



Royal Decrees Providing for Establishment of Free 
Ports at Cadiz, Barcelona, and Bilbao, Spain. 

[Translation from Gaceta de Madrid, Sept. 24, 1914.1 

ministry of finance — statement of facts. 

Sir: 

The so unexpected as well as grave crisis which 
modified radically the relations of the great European 
powers, has not only disturbed the mercantile traffic 
between the belligerents, but also affected in a preju- 
dicial way the economic development of those coun- 
tries which fortunately can remain neutral. The 
dangers of navigation, the interruption of drafts by 
reason of the moratoriums, tbe difficulties which ship- 
ments encounter by reason of the monetary problem of 
provisioning, theclosing of important portsof consump- 
tion, transit, and deposit, may be said suddenly to 
have deprived commerce in general to a great extent of 
the. advantages of modern progress. The world's com- 
merce having been surprised by such enormous ob- 
stacles, efforts are being made everywhere to find 
means to lessen the losses, to harmonize the exports 
for the exchange of drafts, to open a way for credit 
operations, and to find possibilities for carrying out 
commercial transactions. Notwithstanding the nu- 
merous difficulties which the Government had to meet 
both at home and on behalf of America, it is, never- 
theless, determined to adopt without delay the steps for 
resolving so far as possible such important problems. 

With the cooperation of the Bank of Spam the diffi- 
culties surrounding drafts and soluble credits are being 
overcome and in order to favor transit and warehouse 
operations the Government believes itself to be in a 
position provisionally but urgently to adopt means 
which may serve to attract and protect transit trade 
and assure a safe basis to credit by means of security 
on the deposits of merchandise. 

Problems of transit and of deposit of foreign mer- 
chandise are fortunately being studied with the con- 
currence of public opinion and are being debated in 
Parliament m connection with the petitions for the 
establishment of free zones and free warehouses which 
have been presented several years ago. The petitions 
for the establishment of free zones have not yet reached 



FREE ZONES IN PORTS OP THE UNITED STATES. 



87 



a parliamentary status, but those regarding freeware- 
houses have been brought twice to the attention of the 
Cortes (Senate and House of Representatives in Spain) 
one on October 23, 1903. and the other on June 13, 
1911. 

This last project was discussed and approved by 
Congress and favorably reported on by the Senate 
committee on December 7, 1912, the report remaining 
open for discussion at the closing of that legislature. 

In view of these antecedents, it is not too much to 
assume that the foregoing report has the support of 
public opinion and the approval of Parliament, mani- 
fested by the vote in Congress and by the favorable 
report of the Senate committee, and consequently the 
Government believes that with such a project as a base, 
in view of the pressure of the circumstances, it can 
authorize the establishment of a free warehouse in the 
port of Cadiz temporarily, and in the nature of an ex- 
periment, under reserve of amendments, as to places 
and forms which may be voted on by the Cortes, with 
so much more reason as the authorization only im- 
plies some modifications in the present system of the 
commercial warehouse which has been in operation 
formany years in that port. 

The authorization will be for the present limited to 
the port of Cadiz, because aside from the fact of hav- 
ing been designated by the Chamber of Commerce of 
Habana, it possesses an appropriate building which 
can be used without delay, and because the represen- 
tatives of that city have offered immediately to form 
the company which is to assume the customary re- 
sponsibilities in regard to the depositors and the 
treasury. 

If this experiment will yield the expected results, 
the Government will continue to study the problem 
of free zones and support the initiative plans of other 
ports which, on account of their circumstances, claim 
these facilities for the development of their traffic. 

While it is not necessary to enumerate at present 
the advantages of free warehouses on account of their 
having been amply explained at the time the said proj- 
ects of law were presented, it is proper, however, to 
allege as a justification for the urgency that at this 
time, when German and Belgian warehouses can not be 
operated, such free warehouses are the best means of 
attracting navigation to Spanish ports and of offering 
to commerce in general an adequate means of keep- 
ing merchandise in a safe place within easy reach and 
at the disposal of consuming ports without excessive 
expenses or waste of time or great fiscal formalities. 

Based on these considerations the undersigned 
minister, in agreement with the council of ministers, 
has the honor to submit for the approval of Your 
Majestv the following project of decree. 

Madrid, September 22, 1914. 

Senor: 

A. L. R. P. of Your Majesty, 

Gabino Bugallal. 

royal decree. 

In agreement with my council of ministers, I have 
decreed as follows : 

Sole Article. The minister of finance is authorized 
to take the necessary steps to put into operation, with 
as little delay as possible, the free warehouse which 
the representatives of Cadiz propose to establish in 
that port, following as closely as possible the terms of 



oved 

Senate 



the project of law on this subject , which was appr< 
by Congress and favorably reported on by the Se: 
committee on December 7. 1912. 
Given at the palace on September 22, 1914. 

Alfonso. 
The Minister of Finance. 

Gabino Bugallal. 



[Translation from Gaceta <lc Madrid, Oct. 25, 1914.] 

ministry of finance — royal order. 

Very Illustrious Sir: 

Having examined the petitions presented by the 
municipal government and mayor of Cadiz, dated 
September 2 and 19 last, requesting that concession 
for a free warehouse large enough to meet actual con- 
ditions be authorized to said capital: 

Having examined the royal decree of the 22d of 
September, by which, acceding to the foregoing peti- 
tion, this ministry is authorized to put into operation 
with as little delay as possible the free warehouse 
which has been requested, and which is to conform as 
much as possible with the terms of the project of law 
on this matter presented to the Cortes on June 13, 1911, 
approved by Congress and favorably reported on by 
the Senate committee on December 7, 1912; 

Having examined the petition of the chamber of 
commerce, industry, and navigation of Cadiz, dated 
October 8, requesting that the concession be granted 
to the board of harbor works of that city with power 
to transfer the same to a mercantile corporation; that 
the concession should not be granted for any definite 
period, although a minimum of four years should be 
fixed for its suppression (cancellation), and that 
certain explanations and amplifications in regard to 
the project of law be accepted by amending the same 
so that among the articles of merchandise to be 
deposited there be included leaf and manufactured 
tobacco ; 

Having examined the request of the board of harbor 
works of Cadiz dated October 14, accompanied by a 
copy of the authorization granted to it by the ministry 
of public works hi compliance with a royal order of the 
same date, in which they ask that they be intrusted 
with the direction, administration, and exploitation 
of said free warehouse. The petition is further accom- 
panied by plans of the lands and warehouses which it 
intends to establish in the suburb of Extramuros. 
It also assumes the obligation of reimbursing the State 
for any expenses the latter may incur by reason of 
intervention and surveillance of the operations of said 
warehouse. Further, the right is reserved to convey 
or transfer the said concession to a mercantile com- 
pany, if there be any; 

Considering that the project of law approved by 
Congress and favorably reported on by the Senate 
committee grants preference of concessions for free 
warehouses to boards of harbor works, and that the 
board of Cadiz, authorized by the ministry of public 
works, has complied and offers to comply with all the 
obligations contained in article 2 of said law, reserving 
the right to transfer the concession to a mercantile 
company which would be better equipped economi- 
cally to develop such an important improvement, which 
request for transfer would always be subject to the 
condition that it be made to a Spanish company; 



FREE ZONES IN PORTS OF THE UNITED STATES. 



Considering that there exists in Cadiz at the present 
time a commercial warehouse operated hy the treasury 
in accordance with the provisions of section 3, chap- 
ter 7, of the customs ordinances, and that the plan now 
being considered for the establishment of a free ware- 
house would involve merely an enlargement of the 
powers of the existing commercial warehouse in order 
to grant better facilities; 

And considering that, while the requests for the 
admission into the free warehouse of leaf and manu- 
factured tobacco, subject to guaranties necessary to 
protect the treasury, may- be given consideration, no 
steps can be taken at present to amplify the operations 
of transformation of merchandise which should be the 
object of more detailed study, it being obligatory that 
they conform in reference to this important point to 
the provisions of the law reported on by the Senate 
committee: 

The King (q. D. g. — whom God may guard) , in agree- 
ment with the proposals of this general office, has 
decreed as follows: 

First. That the petition presented by the Cadiz 
board of harbor works be granted, and that in virtue 
thereof there is authorized the establishment of a free 
warehouse on the land and in the buildings that have 
been offered; an examination of the latter is to be 
made to determine the repairs and changes which may 
be necessary to put them into a safe condition. 

Second. All foreign merchandise now being admitted 
in the Government's warehouse in said port shall also 
be admitted into the free warehouse, as well as leaf 
and manufactured tobacco and Spanish merchandise, 
the export of which is permitted. The latter mer- 
chandise will lose its nationality upon entering the 
warehouse and be treated the same as goods of foreign 
origin. Packages containing foreign tobacco will be 
sealed on arrival at the warehouse and no change of 
wrappers nor division of their contents will be granted 
except when exclusively destined for the concessionary 
company or for export. 

Third. No merchandise can remain in the ware- 
house for a period exceeding four years. At the expi- 
ration of this time it shall be exported or entered for 
consumption in Spain. 

Fourth. The following operations shall be permitted 
in the warehouse, under the surveillance of the admin- 
istration and of the representatives of the chambers of 
commerce which may request it, whenever an offer is 
made to assume the expense of such surveillance: 

(a) Changing the containers of merchandise. 

(b) Dividing merchandise into commercial grades. 

(c) Mixing one with another to obtain commercial 
grades. 

(d) SheUing and roasting of coffee and cocoa. 

(e) Tanning of hides. 

(f) Pulverization of woods. 

(g) Washing of wool. 

(h) Extraction of oil from copra and from oleagi- 
nous seeds. 

(i) All operations tending to increase the value of 
the merchandise in deposit without essentially chang- 
ing its nature. 

The Government may amplify the operations for 
transformation of merchandise referred to in the pre- 
ceding paragraph after publishing the request for such 
changes in the Gaceta de Madrid and in the Boletin 
Official of the Province of Cadiz, so that any claims 
against such changes, may be filed within one month. 



Such claims will be acted upon by the Government 
within 60 days, and failure to make a decision within 
that time will automatically approve the petition. 

Fifth. Domestic as well as foreign merchandise 
entering the free warehouse will be exempt of the pay- 
ment of transport tax and dues for port works col- 
lected in the port, as well as of any other Government, 
provincial, or municipal tax, and only merchandise 
entering into consumption can be taxed. 

Foreign merchandise which is reexported from the 
free warehouse shall also be exempt from such imports 
and excise taxes. Domestic merchandise to be ex- 
ported will pay the transport tax and dues for port 
works they would have had to pay in case of direct 
exportation without entering the warehouse. The 
export duties will also be collected on all merchandise 
subject thereto. 

Sixth. Merchandise originating in the free ware- 
house upon entry into Spain will pay import and 
transportation duties and other charges, as if they 
had been imported directly from abroad, and will be 
subject to the rules governing importation as set forth 
in the tariff law and customs ordinances. 

Seventh. The State will not guarantee the duration 
of the free warehouse, but while it is in existence the 
merchandise stored therein will be protected by the 
laws and will never be subject to reprisals, not even 
in case of war with the countries of which the owners, 
senders, or consignees of said merchandise may be 
natives. 

Eighth. The concession is not granted for any lim- 
ited time, and the board of harbor works may propose 
and this ministry may convey at any time the exploit- 
ation, of the free warehouse to another, Spanish com- 
mercial company which would offer sufficient guaranty 
to fulfill all the conditions which the management of 
the warehouse requires. 

Ninth. The board of harbor works may ask for the 
cancellation of its concession of the free warehouse 
upon showing that it brings no results or that these 
results are prejudicial to its interests. 

If the warehouse was being exploited by a commer- 
cial company; as set forth in the preceding article, this 
company may also propose the cancellation of the 
concession by giving its reasons for such request, but 
the Government before agreeing to such action will 
submit the request to the board of harbor works for 
it to decide whether it would again take charge of the 
warehouse. The Government may suppress the free 
warehouse of its own initiative, if it is shown that 
such action would be to the interests of the country. 
From the date on which the suppression of the ware- 
house should be agreed upon, no merchandise other 
than that which prior thereto had left its place of 
origin shall be admitted therein, but those already 
stored therein may remain there until they shall have 
remained therein for a period of four years. In this 
case the Government shall take charge of the store- 
rooms and equipment for the period during which 
such merchandise may remain in the warehouse, with- 
out thereby giving to the owners of such merchandise 
a right to a larger indemnity than the amount which 
may be collected through the tariffs in force in such 
free warehouse. 

Tenth. The board of harbor works or the mercan- 
tile company in charge of the operation of the free 
warehouse may issue warrants or certificates of mer- 
chandise which may be negotiated at the banks, in 



FREE ZONES IN POETS OF THE UNITED STATES. 



89 



accordance with the provisions of the article of the 
Code of Commerce on this subject. 

Eleventh. All the laws', regulations, and treaties in 
force in regard to industrial property, trade-marks, 
patents of inventions and commercial names, will be 
in force in the warehouse as well as all other provisions 
of by-laws, inasmuch as the latter do not conflict with 
the limited precepts of this royal order. 

Twelfth. It is prohibited to reside, consume, or sell 
at retail within the boundaries of the free warehouse. 
An exception is made in the case of agents charged 
with the surveillance and of the personnel which is 
deemed indispensable for its safe-keeping and custody 
and the families of the same. 

Thirteenth. Permission to enter into the free ware- 
house is granted to the owners and consignees of the 
merchandise to such part as they may be entitled to, 
to customs employees and to revenue agents desig- 
nated by the latter, to employees of the concessionary 
company, and to duly authorized representatives of 
the chambers of commerce. 

Fourteenth. The company enjoying the concession 
of the free warehouse will reimburse the State for all 
expenses caused the latter for its intervention and 
surveillance of said warehouse, the amount of these 
expenses to be determined at the proper time. Fail- 
ure to pay for four alternatives or successive quarters 
will carry with it, ipso facto, the annulment of the 
concession, provided a request for payment has been 
made to the debtor company and without depriving 
the Government of the right to recover this debt by 
judicial proceedings. 

Fifteenth. The merchandise now stored in the ex- 
isting commercial warehouse of Cadiz may be trans- 
ferred to the free warehouse at the request of its owners 
at the expiration of the term for which storage charges 
have been paid. It may also be transferred sooner, 
but in this case its owners would not be entitled to 
a return of any sum paid for storage. 

Sixteenth. The board of harbor works will present 
to this ministry as soon as possible the tariff schedules 
which are to be applied to the various operations to be 
carried on in the warehouse, as well as the regulations 
which are to be observed in its interior management. 

Seventeenth. This general office will take such 
steps as may be pertinent for the proper intervention 
and surveillance of the free warehouse. 

By royal order, I transmit these presents to your 
excellency for your knowledge and action. May God 
guard your excellency for many years. 

Madrid, October 22, 1914. 



BUGALLAL. 



Sir Director General of Customs. 



[Translation trom Gaceta de Madrid, Oct. 25, 1916.] 

ministry of finance — statement of facts. 

Sir: 

It behooves the Government at this highly import- 
ant historical moment to assure, by all means within 
its reach, that Spanish economic life be provided 
with all the elements that may strengthen its power 
and increase the development of our mercantile and 
industrial forces. 

In addition to the measures already submitted to 
the Cortes with the permission of Your Majesty, 



there is the decree which is to-day submitted for your 
royal signature by the undersigned minister. 

It begins by granting the concession of the com- 
mercial warehouse (bonded) in the port of Barcelona 
to a company constituted in the form requested by 
the mayor-president of the municipality of that great 
city and the representatives of the department of 
public works. 

There certainly do not exist any fundamental 
reasons which may be alleged against turning over to 
the vital forces ot Barcelona the carrying out of this 
patriotic undertaking, not even in regard to interven- 
tion of its municipal government, because the con- 
temporaneous movement in favor of municipal owner- 
ship of great public utilities and the same tendencies of 
Spanish legislation maintained by all the Governments, 
favor the idea of this concession, which, in the form in 
which it is granted, involves a character of public 
convenience and of ample social solidarity for an ex- 
periment in Spain of a system by which only the 
longed-for efficiency may be obtained. 

In any case, the guaranties which surround the con- 
cession and exercise of high tutelage and of special 
safeguard of the general interests and of the special 
interests of the treasury, which are intrusted to the 
ministry of finance, exclude the possibility of any 
damage or perturbations which otherwise may have 
been alleged or feared by timid elements. 

In view of the above statements, Your Majesty's 
Government may deign to grant complete satisfaction 
to long cherished aspirations of the municipal govern- 
ment and of the economic entities of Barcelona, 
assuring thereby the progress of its rich resources and 
in general, the glory and prosperity of Spain, which is 
interested to have at its disposal on the day of universal 
peace, a powerful element of interchange and of mer- 
cantile navigation in the Mediterranean Sea. 

And in virtue thereof, the undersigned minister 
submits to Your Majesty the following draft of a 
decree. 

Madrid, October 24, 1916. 

Sir: 

A. L. R. P. of Your Majesty, 

Santiago Alba. 

royal decree. 

On the proposal of the minister of finance and in 
agreement with my council of ministers, I have decreed 
the following: 

Article 1. The concession for a commercial ware- 
house in Barcelona is authorized to a company consti- 
tuted as follows: The municipal government of said 
capital as representing the city; the presidents or 
delegates of the following corporations: department 
of public works, board of port works, the Catalan 
Agricultural Institution of San Isidro, official cham- 
bers of commerce, navigation and industry, and a 
representation of the labor associations dealing 
especially with maritime undertakings. 

Art. 2. The company referred to in the preceding 
article shall submit to the ministry of finance, within 
the period of one year from the date of this decree, the 
following : 

A. The plans and an explanatory statement of the 
organization to be established in the warehouse, as 
well as its location within the port. 

B. Statement of the operations which the company 
intends to carry on therein, and a schedule of the 
duties to be applied to each of them. 



90 



FREE ZONES IN PORTS OF THE UNITED STATES. 



C. Agreement, executed in legal form, recognizing 
specifically the obligation to reimburse the State for 
the expenses which it may incur by its intervention 
and surveillance of the warehouse. The settlement 
of these expenses will be quarterly. Failure to pay 
for four alternative or successive quarters, after de- 
mand for payment has been made of the company, will 
result in the cancellation of the concession. 

The minister of finance, after such investigation as 
he may deem necessary, will determine the character 
of the operations and duties to be authorized and 
likewise decide upon any other points contained in 
the petition or petitions of the company and which he 
may consider essential for the safeguarding of the 
public interests and the resources of the Treasury. 

Art. 3. The concessionary company will have au- 
thority to issue such bonds or certificates of credit as 
it may deem necessary, and to lease one or more of the 
utilities to any mercantile concern, all such acts sub- 
ject to the authority of the minister of finance. 

Art. 4. All resolutions which may hereafter be 
taken for the execution of the present decree and the 
establishment and development of the commercial 
warehouse of the port of Barcelona shall be published 
in the Gaceta de Madrid, so that within the period of 30 
days from the date of such publication the claims may 
be filed by any entities or individuals who may consider 
themselves prejudiced by the resolution taken. 

The council of ministers, at the instance of the minis- 
ter of finance, will pass upon any such claim, and their 
decision will likewise be published in the Gaceta de 
Madrid. 

Art. 5. For every matter not specially regulated 
by this decree in regard to the commercial warehouse 
in Barcelona, there will be applicable, first, the royal 
decree of September 22, 1914, and its supplementary 
amendments. 

Art. 6. The minister of finance, after hearing the 
board of directors of the company and having the 
report of the council of state, will issue the necessary 
regulations for the management and operation of the 
new commercial warehouse. 

Given at the palace on October 24, 1916. 

Alfonso. 
The secretary of finance, 
Santiago Alba. 



MINISTRY OF THE TREASURY A ROYAL DECREE. 

At the proposal of the ministry of the treasury and 
in accord with the council of ministers I issue the fol- 
lowing decree: 

Article 1. A free depot is allowed in Bilbao to a 
consortium, which will be formed of the provincial 
presidents and delegates of Vizcaya, of the official 
chamber of commerce, industry and navigation, and 
of the council of labor of the port mentioned. 

Art. 2. In the said depot all merchandise will be 
admitted, and such operations will be authorized as 
are permitted and authorized in the depot of Cadiz, 
in accordance with the roval decree of concession of 
October 22, 1914. 

Art. 3. The consortium shall present before the 
expiration of a year from the date of this decree, to 
the minister of the treasury: 

(a) The statutes, regulations, plans of the land and 
buildings, and an explanatory memorandum of the 
organization and the establishment of such depot; 



(b) Report of the operations proposed by the con- 
sortium and the tariffs applicable in each case; and 

(c) A resolution, legally executed, expressly recog- 
nizing the obligation to reimburse the State for such 
expenditures as may be occasioned by the intervention 
and guarding of the depot. The liquidation of the 
reintegration of these expenditures shall be made 
quarterly. Default of four quarterly payments, 
alternate or successive, will cause the cancellation of 
the concession, previous to the payment of the pay- 
ment of the partnership consortium. 

Art. 4. The concessionary consortium shall be em- 
powered to issue such bonds or credits as it may deem 
proper and to lease one or more of its services to a mer- 
cantile organization, always subject to the authoriza- 
tion of the ministry of the treasury. 

Art. 5. All the resolutions that may be dictated for 
the execution of this decree and the foundation and 
expansion of the free depot of Bilbao shall be pub- 
lished in the Gaceta de Madrid so that within the 
period of thirty days from the date of such publica- 
tion, allegation of such rights, wholly or in part, 
which are considered affected in some manner by the 
resolution agreed upon, may be made. 

The council of ministers, at the instance of the 
ministry of the treasury, will decide in each case the 
foregoing, and its decision likewise published in the 
Gaceta de Madrid. 

Art. 6. To all that which is not regulated by this 
decree in regard to the free depot in Bilbao, the royal 
decrees of September 22, 1914, and October 24, 1916, 
in regard to the concession of those of Cadiz and 
Barcelona, and their final disposition shall be appli- 
cable. 

Given at Santander the 30th of July, 1918. 

Alfonso. 
The minister of the treasury, 

Augusto Gonzalez Besada. 



Bill Providing for the Establishment of Free Zones in 
French Maritime Ports. 

[Translation.] 

Ministry for foreign affairs. — French Republic. 

America — United States: Re information concerning 
the free ports and zones of France. 

The ministry for foreign affairs presents its compli- 
ments to the American Embassy at Paris and, referrmg 
to its note of the 9th of this month, has the honor to 
communicate below the information furnished by the 
ministry of commerce concerning the free ports and 
free zones of France. 

As the foreign office has already had occasion to in- 
form his excellency, Mr. Sharp, if there exist in France 
no ports enjoying the system known by the name of 
free zones and free ports, the question of the organiza- 
tion of this system has none the less formed the object 
of several projects due to parliamentary or govern- 
mental initiative. Special mention should be made in 
this connection of the following: 

The bill of Messrs. Bergeon and Chevillon laid before 
the Chamber of Deputies on July 10, 1914. 

The question, which was again raised at the time of 
the discussion in the Chamber of Deputies of the bill 
which resulted in the law of December 29, 1917, on 
the system of warehouses, has received no solution. 



FREE ZONES IN PORTS OF THE UNITED STATES. 



91 



The ministry for foreign affairs, in annexing the 
latter document to the present note, deems it well also 
to join a volume published in 1912 by the ministry 
of commerce and which contains information concern- 
ing the organization and working of the commercial 
maritime ports of France. 

Paris, September 23, 191S. 

[Translation.) 

No. 343. — Chamber of Deputies, Eleventh Legislature, session of 

1914. 

Appendix to the minutes of the second sitting of July 10, 1914. 

Bill providing for the establishment of free zones in 
maritime ports. 

(Referred to the commission committee on commerce and industry.) 

Introduced by Messrs. Bergeon, Lenoir, Candace, Elile-Favre 
(Haute-Savoie\ Lefol, Diagne, Auguste Girard (Bouches-du- 
Rhone), Chevillon, deputies. 

PURPOSES OF THE BILL. 

Gentlemen: The draft of a law providing for the 
creation of free zones in French maritime ports which 
appeared to be on the point of being enacted into law 
during the Ninth Legislature was tabled for two dif- 
ferent reasons. One was to postpone the discussion 
of the question of free zones to coincide with the date 
on which the chamber would take up for debate the 
customs law of March 29, 1910. The second reason 
was a resolution which had been introduced providing 
for the expansion of the bonded warehouse system. 
This project of expansion which for the last four years 
has been under investigation by an extraparliamentary 
committee has not as yet been referred to either of the 
two chambers. 

Furthermore, the system of warehouses (no matter 
how liberal our views may be on the subject) will never 
grant the same facilities as free zones freed from all 
formalities. The merchant desires to be able to oper- 
ate freely', which is something he can not do in a ware- 
house where he is under obligation to deal with a 
personnel not under his control. 

Therefore, even if the system of warehouses should 
be greatly improved that would not be an argument 
against recourse to the more modern institution of 
free zones. 

Bonded warehouses and free zones both have their 
advantages and both can be maintained at one and 
the same time. 

In Germany, for example, where bonded ware- 
houses are managed in an infinitely more liberal 
manner than in our country,. it is perfectly understood 
that they do not preclude the maintenance of free 
ports and free zones, and the coexistence of both 
of them has given and does give uniformly excellent 
results. 

It would be strange if France refused to make a trial 
of a free institution which is considered everywhere 
else as a pillar of support to the protectionist system. 
The purpose of the latter being to increase prices on 
the domestic market, a country subject to this system 
could not successfully continue to take part in inter- 
national trade unless it reserved in its principal ports 
certain areas where foreign merchandise could be 
received free of duty in order to be reexported later. 

Other countries have already set us the example: 
In addition to ports situated in countries with liberal 
customs policies, such as London, Liverpool, Antwerp, 
^Rotterdam, it is to be noted that Hamburg, Copen- 



hagen, Genoa, Trieste, Fiume, have all been provided 
with free zones, and since the beginning of the century, 
not only has none of these establishments been 
discontinued, but projects are now under consider- 
ation for establishing free ports at Salonica and at 
Alexandria. Thus around us the number of foreign 
ports which enjoy these facilities is on the increase, 
and the French ports which continue to be without 
these facilities are in a very disadvantageous position 
to provide freight for our merchant marine and to 
withstand the competition of their rivals in inter- 
national trade. 

It is possible and it is highly desirable to increase 
the traffic of our ports; this can be done by estab- 
lishing free zones which will become manufacturing 
and industrial centers. It is time to give full con- 
sideration to and to act upon this project. 

Such are the reasons which move us to urge, upon 
our colleagues the enactment of the draft bill which 
follows: 

BILL. 

Article 1. In the cities -possessing free ports, it 
shall be lawful, after a decree has been rendered upon 
investigation by the council of state, to admit mer- 
chandise, during a period of 99 years, free of all 
customs duties and internal consumption taxes, .into 
any part of the port and its adjacent territories. 

The decree cited above may not be promulgated 
except upon the demand of the chamber of commerce, 
which shall have been passed upon by the municipal 
council. 

Art. 2. The portions of the public domain included 
in the free zone remain subject, in each matter which 
concerns them, to the appropriate authority. 

The lands under the control of the public maritime 
domain, which will be recognized as essential to the 
operation of the free zone in order to establish thereon 
stores and warehouses, may be assigned to the chamber 
of commerce by decree of the council of state. 

Further decrees may sanction the acquisition by 
the chamber of commerce, of areas outside the public 
domain which are useful for the effective exploitation 
of the free zone by declaring them of public utdity. 

The procedure for the expropriation of such area 1841 . 
shall follow the form prescribed by the law of May 3, 

Art. 3. The proprietors of the areas comprised 
within the boundaries of the free zone may declare 
to the prefecture, within one. month after the receipt 
of notice from the chamber of commerce, that they 
agree to abandon the said areas after indemnification. 
The indemnity to be paid by the chamber of com- 
merce shall be fixed in accordance with the law of 
May 3, 1841. 

In cases of property belonging to feeble-minded 
(incapables), to departments, communities, public 
institutions, or to the State, which is to be included 
within the boundaries of the free zone, this liquidation 
shall take place in accordance with the provisions of 
paragraphs 3 and 4 of article. 6 of the law of December 
22, 1888. 

Art. 4. The chamber of commerce shall establish 
stores, sheds, railways, and the equipment necessary 
for the maintenance, transportation, or storage of 
merchandise upon the lands belonging to it or ceded 
to it by the State. It shall bear all the expenses neces- 
sary for this organization; it shall also defray the 
expenses for the' surveillance of the free zone caused to 
the customs administration, 



92 



FREE ZONES IN PORTS OF THE UNITED STATES. 



To indemnify the chamber of commerce for these 
expenses, it shall be authorized, if necessary, to collect 
certain tolls under the conditions fixed by "the laws of 
April 9, 1898, and April 7, 1902, and fees for storage, 
maintenance, and transportation, according to tariffs 
established by the minister of commerce, upon the 
advice of the municipal council and the minister of 
public works. 

In case of the discontinuance of the free zone, the 
lands, buildings, and equipment belonging to the cham- 
ber of commerce and which would not be needed by 
it in its work, will be sold or leased and the proceeds 
of such sales or leases will be applied toward the can- 
cellation of debts or loans contracted by the chamber 
of commerce in connection with the establishment of 
the free zone. 

The surplus, if any, will be remitted to the State, which 
should use the same for executing or completing port 
works in agreement with the chamber of commerce. 

Art. 5. The chamber of commerce is authorized 
to grant temporarily the use of its land to individuals 
or to companies which will undertake the construction 
and maintenance of the buildings and equipment pro- 
vided for in paragraph 1, article 4. 

The concession is obligatory in case it refers to 
an industry, the establishment of which is authorized 
in the free zone. 

These concessions are approved by the minister of 
commerce upon the advice of the minister of public 
works. They, can only be granted to Frenchmen or to 
companies having as directors or managers a majority 
of French citizens or of foreigners authorized to take 
up their residence in France. 

Art. 6. There shall be allowed in the free zone all 
operations tending to preserve merchandise, sorting, 
blending, or otherwise manipulating the same; the 
manufacture of matches, and the further manufactur- 
ing of foreign tobacco. 

There may also be authorized, by decree issued upon 
advice of the consulting committee of arts and manu- 
factures, new and extinct industries whenever it shall 
have been proven that on the date of the petition of the 
interested party there does not exist any identical or 
similar industry upon the customhouse territory. 

Art. 7. Entry into free zones will be prohibited 
to merchandise originating in any country affected by 
any epidemic, such as come under the laws and regula- 
tions of the sanitary police; all products referred to 
in article 16 of the law of January 11, 1892; powder, 
arms, and ammunition, saccharine and its by-products, 
and printed matter in violation of copyright laws. 

Art. 8. It is prohibited to reside within the free 
zone or to consume and sell at retail therein, except as 
provided for in paragraph 3 of article 10. 

It is also prohibited to convey or to rent any space or 
building to persons or to companies who do not meet 
the conditions provided for in paragraph 2 of article 5. 

Art. 9. All merchandise leaving the free zone to 
enter into domestic consumption will be subject to the 
duties of the general tariff and to the surtaxes specified 
in the law of January 11, 1892. 

However, all such merchandise for which there shall 
be furnished to the customs administration the proofs 
necessary to establish their origin and the conditions 
under which they are transported will be taxed ac- 
cording to reduced schedule, which may be applied to 
it under the general customs laws. 



Domestic or nationalized merchandise entering 
into the free zone from the customs territory will not 
be subject to any duties on reentering for domestic 
consumption, provided its origin has been duly proven. 

Art. 10. The decree establishing the free zone will 
determine : 

First. The boundaries of the zone, the method 
of inclosure, and the means of surveillance. 

Second. The proofs that will be necessary to exempt 
merchandise from the general customs tariff and 
surtaxes provided for in article 9. 

Third. The exceptions which may be alleged to the 
provisions of article 8 in favor of the agents charged 
with the surveillance of the zone and of the personnel 
working within its boundaries. Only such merchan- 
dise on which the fiscal taxes have been paid can enter 
into consumption. 

Fourth. The marks, designations, or distinctive 
signs necessary to identify the products leaving the 
free zone from similar products of French origin. 

Especially when wines or brandies are shipped from 
the free zone, the barrels and cases should be marked 
with indelible characters "free zone." 

Fifth. Finally, it must provide for the approval of 
any other expenses necessary to assure the exploita- 
tion of the free zone. 

Art. 11. Any person who shall have violated or 
attempted to violate the provisions of articles 6, 7, 
and 8 of the present law will be punished with a fine 
ranging from 300 to 5,000 francs. In case of second 
offense, this fine may be doubled. The products and 
merchandise will be confiscated. 

These violations will be considered as customhouse 
matters and prosecuted before criminal courts, either 
at the instance of the district attorney or at the request 
of the customhouse authorities. 

Art. 12. There remains in force and will be applied 
within the free zone the laws of July 28, 1824, referring 
to alterations or substitutions of trade names; the law 
of June 23, 1857, referring to trade and business 
marks; the law of November 26, 1873, referring to 
stamps or designs on these trade marks; the treaties 
and international agreements for the protection of 
industrial property; and finally, all the provisions of 
laws or rules in force in maritime ports, inasmuch as 
they do not conflict with the present law. 

Furthermore, there is prohibited in the free zone : 

1. The placing on the foreign products either in 
whole or in part, whether they be raw or manufac- 
tured, or upon their wrappings, labels, or other marks 
of identification, or upon printed forms or any writing 
attached thereto, of any sign, designation, or indica- 
tion which would lead to belief that the said product 
originated entirely in French territory or in the 
territory of a French colony or possession. 

2. The use of any sign, or designation, or indication 
above referred to, and of every sale or placing on sale 
of the above-mentioned products bearing such signs, 
designations, or indications. 

The seizure of such illicit articles will be made in 
accordance with article 19 of the law of June 23, 1857. 

Any violation of these provisions will be punished 
with a fine ranging from 50 to 2,000 francs, and with 
imprisonment of one month to one year or with either 
of these penalties only. 

Art. 13. Article 463 of the Penal Code is applicable 
to the infractions defined by the present law, 



